Biden Presidency to Bring Changes to U.S.-Mexico Relationship

December 02, 2020

The Biden Presidency will bring changes to U.S.-Mexico relations on labor and employment issues, including the USMCA’s Rapid Response Labor Mechanism, labor costs, and investment risks.

Labor Mechanism: President-elect Biden supported the USMCA based on labor unions' endorsement of the agreement. The AFL-CIO's backing was essential in passing the USMCA. The U.S. union federation recently announced its plans to file a labor case against Mexico under the In-Facility Rapid Response Labor Mechanism. It would not be surprising that unions seek the Biden administration’s support when it comes to enforcing the new procedure. Rep. Andy Levin (D-Mich.), a potential Biden pick for Secretary of Labor and former union organizer, indicated that Biden will be proactive in bringing cases under the new enforcement mechanism and hold Mexico accountable for its labor reforms promises. Employers need to understand the content for compliance. 

Automotive Industry Cost Concerns: Automakers with Mexican operations are mandated to comply with certain labor provisions in the USMCA such as minimum wage requirement (40% to 45% of the auto content must be made by workers earning at least $16 per hour). Those provisions, in conjunction with rising steel and aluminum tariffs, might add labor costs in the country.  However, things might change under Biden’s government.  The multilateral Trans-Pacific Partnership (TPP) deal brokered by President Obama, which was later abandoned by President Trump in early 2017, could be revisited. The other 11 countries, including Mexico and Canada, reached an agreement without the U.S. called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with less stringent labor protections. Should the U.S. join the CPTPP, automakers would have another route to manufacture less-expensive vehicles. Biden could also decrease tariffs on key materials. 

Additionally, a recent key development on Subcontracting labor has signaled a change towards making the Mexican labor market less predictable.  If this change is implemented, global employers might seek support from the Biden’s administration to influence Mexico’s policies on such issues. 

Investment risks of Energy industry: Mexican President Andrés Manuel López Obrador’s recent energy reform, which sidelines private firms in Mexico’s energy sector has shaken U.S. energy companies.  A group of US lawmakers sent a letter to Trump stating such a reform would “undermine the spirit of USMCA” and urging the administration’s support in securing American oil companies’ investment. The pressure will be transferred to Biden to ensure Mexico abides by the new trade deal. Additionally, Mexico’s energy sector tends to have a higher rate of unionization and strong unions.  Biden’s support is also crucial to ensure smooth operations from a labor standpoint. 

Outlook: The Biden administration will receive mounting political and corporate pressures to reinforce the implementation of USMCA labor chapter and to mitigate the labor cost and investment concerns for U.S. companies’ Mexican operations. The outlook is relatively optimistic as the former Vice President is expected to be more proactive and tactful than his predecessor, but companies still need to stay vigilant for any changes.