The USMCA is a trade deal between the United States, Mexico, and Canada. Here’s why Vietnam might not be the best manufacturing location for the US market in this scenario, even though it has lower labor costs:

• USMCA benefits: Mexico, being part of USMCA, enjoys certain advantages over Vietnam when exporting to the US. These include:
  • Reduced or eliminated tariffs on many goods under the USMCA’s “rules of origin” which specify how much of a product needs to be made within the USMCA region.
  • Simpler customs procedures for USMCA members.
• Shipping costs:  While Vietnam might have lower labor costs, Mexico’s proximity to the US can significantly reduce shipping costs. This can be a major factor for bulky or heavy goods.
• Supply chain efficiency:  Having production closer to the US allows for faster and more efficient movement of goods throughout the supply chain. This can be crucial for companies that need to respond quickly to changes in demand.

However, Vietnam can still be an attractive option in certain situations. Here are some reasons why:

• Complex products with high labor content:  For certain complex products that require a lot of labor, Vietnam’s lower wages might outweigh the benefits of USMCA membership for Mexico.
• Diversification:  Companies might choose to diversify their manufacturing base across multiple countries to mitigate risks associated with relying on a single location, such as political instability or natural disasters.

Overall, the decision of where to manufacture for the US market depends on a variety of factors, and the USMCA agreement can tip the scales in favor of Mexico for many products.