A report published by Wealth Daily and written by investment research specialist Carl Delfield charts Mexico’s clear path to economic success over the coming months and years as China’s growing economic challenges help shift the complicated trade and investment relationships that exist between this Asian giant, Mexico and the U.S.
“According to consultant AlixPartners, Mexico has surpassed China to become the cheapest country for manufacturing – especially for products in the U.S. market,” writes Delfield. “In addition to the cost factor, flexibility, speed of response, and quality all point to Mexico over China.”
To put it in perspective, the cost advantage of producing goods in China and delivering them to – say – somewhere along the California coast in the U.S., has been reduced from 22 percent in 1998 to zero in 2013. Basically, any labor cost advantage in China was destroyed by higher oil prices, which led to higher fuel costs and greater shipping expenditures, prompting more companies to choose Mexico. Although trade between the U.S. and China has declined in recent years, since 2010 trade between the U.S. and Mexico has grown by 30 percent.
“U.S. companies are also realizing that Mexico is a better option than China for manufacturing goods for North and South American consumer markets,” writes Delfield. “Analysts are calling this ‘nearshoring,’ ‘inshoring,’ or ‘reverse globalization.”
Interestingly, Delfield explains why this is also better for American workers and manufacturers, since nearly half of all goods assembled in Mexico are actually made in America, compared to only 4 percent of goods that are made in the U.S. and assembled in China. In another semi-ironic twist, Chinese companies have also begun moving production to Mexico in recent years, to take advantage of its wide variety of trade advantages and the undeniable benefits of Mexico’s close geographical proximity to some of the world’s most important markets.
The Peterson Institute for International Economics explains in even greater detail how U.S. investments in Mexico over the years have actually helped increase jobs in the U.S., much to the surprise (and no doubt chagrin) of those who made bleak forecasts following the adoption of the North American Free Trade Agreement (NAFTA) in 1994. In brief, here’s what happened: Instead of leading to job loss and fewer investments flowing into the U.S., NAFTA proved that foreign direct investment (FDI) and job creation in Mexico actually serves as a complement to the various operations of U.S. businesses, not as a substitute, as some naysayers predicted.
Finally, in a blog titled, “Why Millennials should try their luck in Mexico,” BlackRock Chairman and CEO Larry Fink explains what he sees as the main factors that set Mexico apart from other emerging economies, including its diverse set of resources and industries, its close proximity to the world’s largest economy, a stable currency and its proactive, democratic government.
“We could learn a thing or two from our neighbors – in particular, the Mexican government’s willingness to take bold steps in order to foster long-term growth,” writes Fink. “Over the next few decades, capital is going to flow more effectively in Mexico, the workforce will become better trained, and it will be easier and easier to do business. It’s the ideal environment for both entrepreneurs and established companies.”
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