Once again, Mexico looks like a new El Dorado for US
Its been nearly twenty years since Mexicos proximity to the U.S. paid true economic dividends, but the past five years have seen a re-emergence of…
With the implementation of the North American Free Trade Agreement twenty years ago, many North American and international companies have moved their manufacturing to Mexico at a lower cost, though a majority of Mexicans have seen little benefit in income. (AP Photo/Ivan Pierre Aguirre)
Its been nearly twenty years since Mexicos proximity to the U.S. paid true economic dividends, but the past five years have seen a re-emergence of trade relations between the neighboring nations on par with those first seen between the two when NAFTANorth American Free Trade Agreement was first instituted in the early 90s.
Reacting to rising labor costs in China, manufacturers all over the U.S. are now turning to Mexico as the more profitable location for their factories.
Consequently, new trade revenue streams between the two nations have opened up and as Damien Cave of the New York Times explains, American trade with Mexico has grown by nearly 30 percent since 2010, to $507 billion annually, and foreign direct investment in Mexico last year hit a record $35 billion.
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As the ratio of Chinese to Mexican imports is lowered, Mexican products are increasingly playing a larger role in the American marketplace. This shift can be credited to the aforementioned doubling in Chinese labor costs, which generally cancel out the transportation expenses for American manufacturing companies in China.
And yet, while manufacturing is up, average Mexicans have failed to experience the benefits of these mushrooming industrial and trade sectors. Following the release of first quarter figures, the Mexican Central Bank revised its original projections for yearly growth from 3-4% to 2.3-3.3%. The static circumstances are a consequence of both a sluggish U.S. consumer marker and ineffective economic reforms in Mexico.
Since taking office last year, President Enrique Peña Nieto and his administration instituted a series of fiscal reforms meant to invigorate the economy by increasing public spending.
However, the 13.2% increment in spending during the first quarter of 2014 alone has failed to positively influence the domestic economy as a whole. The prospect for long-term growth definitively remains, but as of now, the reforms have mostly had negative consequences.
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As The Economist explains when citing economist, Jonathan Heath, this stagnation despite huge public spending programs can be attributed to the fact that, The government is spending more, but it took that money away from households.
In other words, despite increased expenditure in order to stimulate the economy, increased taxes have inhibited the growth which this expenditure should lead to.
Ultimately, too little time has passed to measure the true long-term effects of Peña Nietos fiscal reforms. However, if they continue to inhibit the growth of the Mexican economy, its unlikely that the recent boom in manufacturing will have proportional positive consequences for the Mexican populace as a whole.
