With NAFTA in Trump’s crosshairs, Mexico’s border factories brace for the unknown

With NAFTA in Trump’s crosshairs, Mexico’s border factories brace for the unknown

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Seen from the top of the Paso del Norte International Bridge is the downtown in El Paso, Texas.

February 25, 2017 at 7:30 pm

EL PASO – If you sleep on a memory foam mattress, chances are good that its fabric cover was made here in a small factory in this desert border town on the westernmost edge of Texas.

Well, here and over there, across the Rio Grande in Ciudad Juarez, a Mexican city where pieces of fabric cut in El Paso are stitched together and shipped back across the border. The supply of cheap labor in Mexico has fueled the rise of manufacturing plants dotting the border known as maquiladoras.

The journey of this mattress cover, from El Paso to Ciudad Juarez and back, illustrates the far-reaching tentacles of free trade and its impact on the border economy and across the United States. It’s a journey now fraught with tension as President Trump moves to renegotiate – or even unilaterally withdraw the country from – the 23-year-old North American Free Trade Agreement (NAFTA) that has allowed maquiladoras to flourish but that Trump and some Rust Belt communities blame for the loss of U.S. manufacturing jobs.

Perhaps no one knows the complex implications of trade agreements better than a family whose prosperity and company profits were built on their promises. MFI International is a U.S. textiles manufacturing firm that has operated on the border for three decades. Now, in a moment of uncertainty and flux, the tweaking of any trade deal will change the foundation on which the company runs as well as the economic fates of two cities that are inextricably linked.

“We are in the desert where things don’t look that green, but what makes our area very fertile is our people on both sides of the border who work in the manufacturing industry,” said Cecilia Levine, who, along with her husband and son, owns MFI International. “Every job in Mexico produces jobs in the United States.”

Altering NAFTA could raise another complexity – the higher prices likely to follow would make U.S. companies less competitive against manufacturers overseas.

“Stopping NAFTA doesn’t stop the flow of goods coming in from China,” Levine said.

NAFTA, which Trump has called “the worst trade deal in history,” set the foundation for the current economic ecosystem in border towns by allowing companies in the United States to send raw materials to their plants in Mexico for assembly and import the finished product back to the United States – generally without paying duties.

The result for consumers: finished goods at a lower price.

On a recent morning in an industrial park on the eastern outskirts of town, rolls of bound cloth waited to be inspected and processed by the 100 or so workers in MFI’s El Paso plant. A worker used a knife to manually cut patterns from a three-inch stack of polyester material as cumbia music echoed through the factory.

Once the pieces for the mattress cover are cut, they are loaded onto semi-trucks bound for Ciudad Juarez, where workers earning less than half the salary of their U.S. counterparts sew the pieces together.

Cecilia Levine used to cross the U.S.-Mexico border four to six times each day.

She started manufacturing plus-size fashion in Ciudad Juarez with a six-person plant in 1986, seeking to take advantage of a previous customs rule that allowed U.S. materials to enter Mexico duty free as long as the manufactured products were exported back to the United States. Within a couple years, her factory had grown to 260 workers.

Then a single mom, she recalled her daily routine of piling her three young children in the car and driving from their El Paso home over the bridge to Ciudad Juarez to open the factory by 6:30 each morning before schlepping them back to El Paso in time for school. Her American children grew up in the factories, doing their homework, learning to sew and driving forklifts.

Shortly thereafter, she met Lance Levine, who had just moved his vacuum cleaner filter factories from New York and Illinois to El Paso and Ciudad Juarez to better compete with the Asian market. He was expanding manufacturing to include other goods such as jock straps and baby carriers. She snagged a contract away from him to make slippers, and they fell in love. She sold her company and joined his, as the chief of operations.

Business boomed after NAFTA came into force in 1994. In addition to lowering tariffs among the United States, Canada and Mexico, the trade agreement created a common set of rules, regulations and practices among the countries. That made companies feel more comfortable about the long-term stability of the U.S.-Mexico relationship, prompting them to invest in manufacturing operations along the border, Lance Levine said.

Maquiladora employment in Mexico grew 86 percent in the first five years after the onset of NAFTA, according to the Federal Reserve Bank of Dallas. MFI expanded the number of workers in both its El Paso and Ciudad Juarez plants.

Then China joined the World Trade Organization in 2001, opening up the world economy for Chinese exports. Nearly all textiles manufacturing migrated to China, where production costs were much smaller in comparison.

“We got killed. Virtually the entire textile industry in the U.S. was destroyed. We just couldn’t compete with Chinese prices,” said Lance Levine, accusing China of currency manipulation and government subsidies that he said prevented fair competition.

At the time, Lance Levine sat on an International Trade Advisory Committee to the U.S. Commerce Department. Cecilia Levine served on President George W. Bush’s Export Council.

Together they raised concerns to the U.S. government about American businesses losing their competitive edge to China. Cecilia even traveled to China with then-Commerce Secretary Donald Evans to meet with the Chinese government about leveling the playing field – to no avail.

“It was like a nightmare. All our baby products went away. Clothing went away. Home furnishings went away,” Cecilia Levine said. “If I’d only known how to make jeans and those jeans went away, I could have sat there and cried. I learned to make something else.”

MFI switched to manufacturing larger products, such as mattress and couch covers, that would cost more to transport from China to the United States.

The Levines’ concerns over unfair foreign competition is reflected in Trump’s trade rhetoric. Trump has already withdrawn the United States from the Trans-Pacific Partnership, a 12-nation trade agreement designed during the Obama administration to help the countries compete against China’s growing economic clout. But Trump argued that the deal would have put U.S. workers at a disadvantage to cheaper labor in countries that were also part of the deal, such as Vietnam. Instead, Trump has threatened to impose high tariffs on Chinese, as well as Mexican, goods.

Economists say NAFTA has benefited the United States overall and that raising tariffs would risk sparking a trade war and wreak havoc on the manufacturing supply chain. Slapping a 35 percent import tariff, as Trump has threatened with Mexico, would be “bad for growth, bad for business, bad for jobs,” said Caroline Freund, senior fellow with the Peterson Institute for International Economics in Washington.

Freund chalks up Trump’s talk of high tariffs and withdrawal from NAFTA as negotiating ploys. A more likely scenario floated by the Trump administration, she said, would be to push for rules mandating that a higher percentage of parts and materials originate in North America in order for traded products to be exempt from tariffs. That would limit imported materials from Asia, where MFI gets much of its fabric.

But even that change could have negative consequences, Freund said, “making production less efficient and making our companies less competitive globally,” she said.

Others are more supportive of the Trump administration’s attempt to renegotiate NAFTA. Raising the requirement for parts originating in North America would encourage foreign companies to locate production plants in North America and prevent “free-riding imports” from China and elsewhere, said Scott Paul, president of the Alliance for American Manufacturing.
MFI currently imports about 20 percent of its cloth from Asia because it’s cheaper than domestic cloth.

Still, Lance Levine said, finished goods are arriving in the United States from China at a lower cost than the materials themselves. Unless the United States increases tariffs on those finished products, U.S. manufacturers would still lose, Levine said, because renegotiating NAFTA to raise the percentage of materials sourced from North America would result in higher priced mattresses made in the United States and Mexico.

Already, MFI produces some “Made in the USA” mattress covers completely assembled in El Paso for mattress companies who request them – at a higher cost.

“If my products were to become more expensive, I guarantee you my clients are going to buy where they can get equal products at lower cost,” Levine said.

Cross-border trade existed in this region long before NAFTA and will continue no matter what Trump does, Cecilia Levine figures. One of her great-grandfathers traded cattle with Mexico.

Another great-grandfather operated gold mines in Mexico as well as luxury department stores in both the United States and Mexico. Her father ran cotton gins in Ciudad Juarez and Chihuahua and sold Pima cotton to the United States.

International trade, she said, is in her blood – and the country’s.

“Mexico makes the perfect partner with the U.S.,” she said. “Our economies are intertwined.”

In an industrial park in Ciudad Juarez, about a 20-minute drive from MFI’s El Paso factory, workers sit in clusters surrounded by plastic crates overflowing with pieces of cloth. Some sew covers for a major memory foam mattress brand, assembling zippers, adding labels, topstitching fabric panels. Others do the same for a start-up “bed-in-a-box” company.

A child Jesus doll, Santo Nino de Atocha, watches over them from his perch on a little wooden chair nailed to the white cinder block wall. So does Saint Jude, a saint of miracles – as well as a screen displaying their productivity in real time.

The factory’s 650 workers come in two shifts – the first from 6 a.m. to 3:45 p.m., the second until half past midnight, five days a week. They are paid by seniority and skill set, with a seamstress earning, on average, $147 a week including benefits.

Workers have been harder to find these days. Maquiladoras in Ciudad Juarez were short about 30,000 workers in 2016, according to local business associations. That deficit has dropped dramatically in 2017, to between 3,000 and 6,000, according to the Industria de Exportación, a nonprofit representing Mexican export companies, because companies are not growing as quickly given the uncertain political and economic climate.

While many workers moved to Ciudad Juarez from elsewhere in Mexico for these factory jobs, thousands more moved out in recent years when the city was racked by violence. The crime has subsided, and “vacantes” signs advertising job openings have sprung up on fences around the industrial parks. An increase in auto manufacturing plants contributed to the worker shortage, Wollschlager said, as well as an aging workforce. Young people in Mexico simply don’t find factory work to be all that attractive these days, he said.

To lure workers from the south, maquiladoras in Ciudad Juarez began offering benefits such as two square meals a day and transportation from their homes to the factories. The commute to MFI’s plant on refurbished school buses painted white could stretch to more than two hours amid afternoon traffic.

The U.S. Chamber of Commerce estimates that 6 million U.S. jobs depend on trade with Mexico. Many are on the border; a 10 percent increase in manufacturing on the Mexican side increases employment in El Paso by 2.8 percent, according to research by the Federal Reserve Bank of Dallas. In addition to factory work making parts for the supply chain of cars, medical devices and electronics, thousands of U.S. warehousing and logistics jobs are driven by cross-border operations.

In Ciudad Juarez, the number of maquiladoras has risen by more than 40 percent since NAFTA to 327 plants today, according to research by the University of Texas at El Paso Border Region Modeling Project.

But the business community here is on edge. More than two dozen business leaders and mayors recently penned a letter to Congress warning that retreating from NAFTA would cripple trade and cause recessions in border communities and elsewhere in the United States.

Uncertainty over NAFTA has frozen investments in the region, with hiring and land purchases slowing, said Jon Barela, chief executive of the Borderplex Alliance, a nonprofit focused on promoting economic opportunity in El Paso, Ciudad Juarez and southern New Mexico. In one week alone, he said, at least a dozen companies have frozen capital investments on both sides of the border, delayed hiring and canceled factory orders from U.S. suppliers as well as transportation contracts with trucking companies.

“The stakes are very high,” Barela said. “For decades the two nations have worked to develop a relationship that Trump has blown apart in a matter of a week.”

Delighted whoops and hollers erupt from a sewing cluster in another corner of MFI’s Ciudad Juarez plant. Geronimo Renteria, a 62-year-old nicknamed “El Gallo” (The Rooster), entertains his colleagues with his realistic clucking and crowing. Renteria stood out in his white fedora, which he’s allowed to wear only on Fridays because he and his colleagues go dancing after work.

Renteria said he came to MFI three years ago because he likes to sew. Previously he was making wiring harnesses for airplanes at another maquiladora. That factory did not allow him to wear his fedora.

“A lot of other companies don’t take the elders. If you’re 50, forget it. But here, we embrace the elders,” said Cecilia Levine.

It would be a mistake to think that all these jobs in Ciudad Juarez would return to El Paso if the United States pulled out of NAFTA, she said. What would more likely happen, she said, is that the mattress companies, too, would decamp for China, taking the jobs in Ciudad Juarez and El Paso along with them.

“It would be very difficult to stay open,” she said. “You are talking about a U.S. company that would suffer.”

Once the mattress covers are complete, workers load crates of finished covers into the back of a semi-truck, ready to return to El Paso. From there, the covers will be shipped to various mattress companies around the United States to be stuffed with memory foam and sold in stores.

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