U.S. and Mexico Deeply Linked By Trade

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Photo credit: WTC Ciudad De Mexico by Armando Argandar

When North Americans and people from other parts of the world think of Mexico, one of the first things that they may think of, sadly, is the security situation in the country caused by drug traffickers and associated gangs.  However, smart investors and businessmen know that Mexico is quickly becoming an economic powerhouse due to the Spanish-speaking country’s free trade agreements with 44 countries, economic policy reform, and highly skilled, talented workforce.  The ties that bind Mexico and the United States go beyond those of friendship; the two countries are deeply linked by successful trade.

In only twenty years, Mexico’s economy was inward looking and heavily dependent on oil.  Since the North American Free Trade Agreement (NAFTA) was signed two decades ago, the economy in Mexico has turned out to be one of the most open and competitive on the globe.  In fact, Mexico has become so competitive that when it comes to the measure of trade to GDP, Mexico is now surpassing China.

Many experts in the field of international economics say that this success story is mostly in part due to increased trade with the United States since NAFTA came into effect.  Regional supply chains between the United States and Mexico for different products have been flourishing since 1994; interestingly, the economic relationship between the US can be seen as a symbiotic one.  This is because for every article imported from Mexico, about 40 percent of it was actually made in the United States.

In many companies, there is a type of integration that crosses the border in a way that is basically seamless.  Research and development labs might be on one side of the border, while manufacturing will occur on the other, and both facilities may be only minutes away from each other.  In some cases, manufacturing, production and research may actually occur in both countries, meaning that industries in both the United States and Mexico are now permanently tied; the two economies are deeply linked in long-term relationships.

Both countries benefit by Mexico’s positive future.  What is particularly of interest to investors is the fact that even as the U.S. economy may have suffered in the past few years, the overall amount of trade occurring at the U.S. – Mexico border saw growth rates of around 7%.  By some estimates, if cross-border trade included services as well products, the monetary value of total trade would be well over half a trillion dollars per year.  The amount of trade could also increase exponentially if either partner were to increase free trade agreements with other trading blocs.  Negotiations are currently underway for a U.S. – European Union free trade agreement, and the Trans-Pacific Partnership could open up Asian markets to the Mexico-U.S. products manufactured in the border regions.

Mexico still has to get its security situation under control, but the economy is still growing in spite of it.  The United States and Mexico share deep ties when it comes to their economies; the United States is Mexico’s largest export market, and Mexico is the largest or second largest market for 22 individual states.  Mexico’s success also spells success for their neighbour and partner north of the border.