Mexico On The Rise

By Fareed Zakaria

www.cnn.com

This past week, Los Cabos, Mexico, was quite literally turned into a global public square. Leaders from 19 top economies plus the European Union gathered to discuss the world's major crises: the euro, global growth, Syria. But the G-20 summit, as it's called, also shed light on a few crucial relationships.

Take the U.S. and Russia, for example. Much was made of how Presidents Barack Obama and Vladimir Putin leaned away from each other during talks. Commentators said it felt as chilly as a Moscow winter. Contrast that with Obama and Chinese President Hu Jintao: a warm handshake and big smiles.

But the meeting that really got me thinking was the one between two Latin American leaders: Mexico's Felipe Calderon and Brazil's Dilma Roussef.

Why?

Right now, Brazil has the world’s attention. It is a much vaunted BRIC economy in the company of China, India and Russia. On the other hand, the perception of Mexico is that of a poor country with regular drug-related killings.

That may be true. But very quietly, Mexico is stepping out of Brazil's shadow.

To understand why, let me first explain Brazil's recent rise. Ten years ago, Mexico's economy was bigger than Brazil's. But then Brazil suddenly began to grow much faster, so much so that its GDP overtook Mexico's and became twice as large. If I had to cite one main reason for this, it would be China, Brazil's biggest trading partner. China's growing appetite for commodities led to a boom in resource-rich Brazil.

But just as China buys from Brazil, it competes with Mexico. After joining the World Trade Organization, Chinese manufacturers have undercut Mexican ones, selling at lower prices and in bigger quantities.

Not only that, Mexico's biggest trade partner has had its own troubles — and I'm talking about the United States of America.

But it seems we're now at another twist in the tale.

Brazil can no longer count on a sustained boom in global commodity prices. Growth has slowed from nearly 8% in 2010 to 2.7% last year. And Brazil has become uncompetitive. Its minimum wage is three times that of Indonesia and Vietnam. The World Bank ranks Brazil 126th in the world for ease of doing business.

Mexico, on the other hand, ranks 53rd. Its economy is set to grow 4% this year. Take its auto industry, for example. It generated $23 billion last year, more than oil or tourism. Mexican factories are slowly replacing Chinese products in America, thanks in part to regional trade agreements but also because China itself is facing rising labor costs.

Mexico's growth is crucial for America. The more Mexico rises, the less America will need to worry about illegal immigration. In fact, studies show migration patterns have already been reversed.
More: Immigration lessons for the U.S.

And while Brazil tries to play a role as the alternative power to America in the Western hemisphere — harkening back to the days of non-alignment — Mexico is more in tune with American ideas. It is a solid foreign policy partner.

As Mexico gears up for elections on July 1, its new president will have a long checklist of problems to fix. State monopolies need to be broken down; corruption must be confronted; creaking infrastructure needs repair. But top of the list is drug-related violence, which shaves off 1 percentage point of GDP growth every year.

Brazil remains a bigger economy, and will likely stay that way for a while.

But don't let perceptions of Mexico fool you. Despite all the violence, despite being overshadowed by its flashier neighbors, it is quietly on the rise.