Wednesday, April 8, 2015

In Mexico, a Resilient Manufacturing Sector Thrives

stratfor.com
  



Thanks to its thriving manufacturing sector, Mexico's economy has performed well relative to other major Latin American economies in recent years. Unlike Brazil and Argentina, Mexico has continued to see solid growth because of its integration with (and dependence on) the U.S. market. Although low global oil prices will put pressure on Mexico's economy, the performance of the industrial sector — especially in high-end manufacturing — will be a key driver of Mexico's economic growth this year and beyond.

In the late 1980s and early 1990s, Mexico underwent a profound economic and political reorganization. The economy liberalized, culminating in the North American Free Trade Agreement (NAFTA). Major state-owned companies privatized, transforming Mexico from a closed economic and political system into an export-oriented industrial economy. As a result, trade increased between Mexico and the United States, and a manufacturing belt sprung up along the countries' shared border. In 1990, the United States accounted for 69 percent of all Mexican trade; by 2000, it accounted for nearly 80 percent.

At the turn of the century, however, China's special economic zones became cost-competitive alternatives to Mexican factories. Mexico responded by producing more valuable commodities, such as automotive, aeronautical and electronic products. Even though clothing exports dropped 43 percent between 2002 and 2012, automotive exports increased by 152 percent and electronic exports increased by 73 percent over the same period. Average manufacturing labor costs in Mexico are also now almost 20 percent lower than in China — 15 years ago this was not the case.

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