During the presidential election in the United States, the US’s trade deficit with Mexico has been cited as a major concern. Unfortunately, political stump speeches are often bereft of the nuance necessary to adequately address international trade issues. The purpose of this article is to provide data and analysis to help readers better understand some of the nuances of the Mexican economy and export sector.
This article begins with background information on the Mexican economy. Next, it digs deeper into the most recent data on Mexican exports. Finally, it ends with a brief analysis.
Mexico straddles several geographic areas: North America, Latin America, Central America, the Caribbean, and the Pacific. The Mexican economy is bolstered by this geographic diversity in terms market access – the United States via land, Asia via the Pacific, and the European Union via the Atlantic.
In terms of gross domestic product and population, Mexico is the second largest country in Latin America. The capital of Mexico – Mexico City – is the second largest metropolitan zone in Latin America with more than 20.6 million residents – or 18.6% of the country’s total population – in the metropolitan area. The Mexico City metropolitan area – primarily the Federal District and the state of Mexico – is the most economically important region in Mexico. The area constitutes roughly a quarter of Mexico’s total GDP (Brookings).
The second most economically important metropolitan area in Mexico is Monterrey, Nuevo Leon. Nuevo Leon is a northern state with a small border with the United States at Colombia, Texas just west of much larger border cities of Nuevo Laredo, Tamaulipas and Laredo, Texas.
Monterrey’s economic success is due in large part to its proximity to the United States and the economic relationship between the US and Mexico. These factors and state support have encouraged the massive, export-oriented industrial development in the border state.
Numerous trade agreements have encouraged companies to located facilities within Mexico in order to take advantage of geography, low wages, and a technically skilled labor market.
Mexico has signed a number of free trade agreements and preferential trade agreements (OAS). The earliest and most important FTA is the North American Free Trade Agreement between Mexico, the United States, and Canada. Mexico has FTAs with more than 40 countries and economic blocs, including the European Union, the European Free Trade Association, the Pacific Alliance, and Japan (map 1).
In February 2016, Mexico signed the Trans-Pacific Partnership. Although Mexico already has FTAs with four of the other countries involved, the TPP will give Mexico greater access to Australia, Brunei, Malaysia, New Zealand, Singapore, and Vietnam. The sum of these six countries GDP is $2.31 trillion (World Bank).
These trade agreements have contributed to the manufacturing boom in Mexico. Despite the significant number of FTAs, Mexico’s export sector is still heavily reliant on the US market and on just a few types of goods.
What and where are important questions to ask when examining international. This section uses five graphs to answer two questions: what is produced, and to where is it exported?
Where The vast majority of Mexican exports go to the United States (graph 1). Geographic proximity, the size of the US economy, and a favorable trade environment explain the dominance of the US market vis-à-vis Mexican exports.
Exports are highly concentrated in three HS-categories: vehicles, electronic equipment, and machinery (graph 2). Vehicles and electronic equipment have accounted for at least 40% of Mexican exports since 2013 (table 1). This heavy concentration can leave Mexico in a vulnerable situation if there is a dramatic shift in policy or consumer preference in the recipient country. However, as graph 3 shows, the Mexican export sector has handled dramatic trade shifts in the recent past.
There have been several significant changes in Mexico’s main export commodities in recent years (graph 3). Mineral fuels, oil and electronic equipment exports as a share of total exports fell harshly since the start of the Great Recession. Since the same period, vehicle exports have grown as a share of total exports.
Eighty-nine percent of vehicles exported in 2015 went to Mexico’s two other NAFTA partners with 84 percent going to the US and 5 percent to Canada. The United States and Canada have captured roughly 90 percent of vehicle exports from Mexico since at least the early-1990s.
US domination in vehicle exports shown in graph 4 is not the end of the story. Graph 5 shows that growth in exports to other countries has outpaced growth in exports to the US since approximately 2004. However, while exports to the US have continued to grow, exports to the rest of the world have fallen since their peak in 2012.
Economic liberalization policies in the late-20th century contributed to the boom in manufacturing that is still going in Mexico. While the Mexican export sector is heavily dependent on the US market, it is fairly well diversified in three broad manufacturing categories.
This article has illuminated the “what” and “where” of Mexican exports. Turning to the “how” requires an in-depth look at the most important at the domestic policies and key businesses that affect the most important export category: vehicles.