It wasn't supposed to be like this, but the folks who help U.S.companies set up production in Mexico say they're having a solidyear.

Tecma Group has more business than ever in its three decadesdoing relocation. In just the last few weeks, it aided a maker ofcleaning equipment and a packaging company make the move south.Chicago-based Mexico Consulting Associates has three new prospectsinterested in Mexico. Keith Patridge, who runs McAllen EconomicDevelopment Corp., expects at least 12 companies to set up shop inReynosa alone this year. And another firm, Tacna Services Inc., hasassisted two businesses locate in the Baja California area.

President Donald Trump's vow to scrap or revamp the NorthAmerican Free Trade Agreement was expected to put a scare intocompanies considering these kinds of moves. But many are stickingto plans to set up shop in Mexico even if the pact isn't renewed,according to the experts who help firms relocate and find newplants.

Lots of factors go into the decisions but these companies havemade a simple calculation: Cheap labor in Mexico—as much as a$20,000 saving per worker compared with the U.S. —is enough tooffset the higher costs of any tariff imposed by NAFTA's demise.That math shows how Trump's America First effort to revivemanufacturing faces hurdles.

“If they just wiped out NAFTA and went back to normal tradetariffs, I think that's manageable,” said Ross Baldwin, chiefexecutive officer of Tacna. “Life would continue on because thelabor rate is so dramatically different.”

The latest rounds of talks over the 23-year-old trade treatyended last week, with Mexico and Canada rejecting hard-line U.S.proposals. Negotiations will resume in November but the ministersagreed to put off any resolution until next year.

To be sure, some economists predict a less rosy outcome than dothe relocation firms, which have reason to put a gloss on theirbusiness. Economists point to studies warning of drasticconsequences if the accord is ended—a loss of more than 250,000jobs in the U.S. and almost 1 million in Mexico, which has beendeeply transformed by NAFTA. Trade with the U.S. exploded to $524billion last year from $82 billion in 1993, the year before thepact took effect.

After his election, Trump used the bully pulpit to shameexecutives who intended to move manufacturing to Mexico. Thecampaign worked for a few months as some companies froze theirMexico plans. But the flow of jobs south resumed earlier this yearas they weighed the cost advantages.

Under NAFTA, the three countries pay nothing on almost all goodsthat cross their borders. But if Trump decides to kill theagreement, trade would be subject to tariff limits set by the WorldTrade Organization. On average they are less than 3.5% for Mexicoand about 7% for the U.S., said Benito Berber, a senior economistfor Latin America at Nomura.

Wage Gap

Many companies may just swallow those costs because of the wagegap. A starting salary for a Tijuana factory worker, includingbenefits, is the equivalent of about $2.50 an hour, according toBaldwin. The average hourly wage for U.S. assemblers is $14.93 andthe lowest paid 10% of the group earns $9.24 an hour, Bureau ofLabor Statistics data show.

Plus, Mexico's labor costs have barely changed over the lastcouple decades, while China's—a rival to woo manufacturingjobs—have steadily risen.

Intermex Industrial Parks, which provides real estate andservices for factories, boasts on its website that U.S.corporations can save $20,000 annually per worker, and touts Mexicoas “among the best in labor stability.”

Kongsberg Automotive, an auto-parts maker, is taking advantageof the differential. Early next year, it's closing a factory inEasley, S.C., that makes hose and tubes and moving production toMexico, the Norwegian company said in August. The factory employs97 workers.

“There is a strong need to become more efficient and reducecosts, which can only be achieved by relocating the Easleymanufacturing operations,” Kongsberg said.

Halyard Health Inc. is closing a plant in Buffalo Grove, Ill.,that makes medical devices and is moving part of the operations toMexico, according to federal filings. Layoffs of the 85 workersthere began at the end of September. Halyard has factories in atleast four Mexican cities, according to a company filing. Aspokesman didn't respond to a request for comment.

All this has even the relocation experts admitting to somesurprise over the strength of their business.

“Actually, demand has probably grown slightly and the conditionsright now in Mexico are actually pretty good,” said Gene Reilly,chief of the Americas for Prologis, a developer of industrial realestate with operations in Mexico.

From: Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.