Don’t get too excited about the Aztec Tiger

Mexico is a trendy pick for the new it country. It has an open economy, a lot of trade agreements and easy access to the US market.

People seem happy that Mexican labor is now competitive with Chinese labor for manufactured exports.

There are two definite problems with this celebration.

First, Mexico is a middle income, OECD country ($9,400 per capita income in 2011 according to the World Bank). China is a poorer country (about $4,900 according to the same source). It is not good news for Mexico that its wages are competitive with Chinese wages. Mexico should have a more highly skilled and highly paid labor force than China.

Second, there is much less to Mexico’s manufacturing boom that it appears on the surface. In 2011 Mexico’s 5 largest exports were crude petroleum oil, passenger motor vehicles, flat panel screen TV’s, mobile telephones, and vehicles for the transportation of goods.

Sounds pretty good until you look and see that in 2011, Mexico’s top five imports were gasoline, parts for flat panel screen TV’s, parts for mobile telephones, and parts for passenger motor vehicles. (source is here)

So they export a commodity and import the finished product made from the commodity and they do final assembly of consumer goods.

In other words, they import the parts and  export the finished product. Not too much value added there guys.

Sure, jobs at near Chinese level wages for Mexican manufacturing workers are better that no jobs for Mexican workers, but Mexico should be embarrassed about their low wages and low value added exports, not proud.

Mexico should be importing goods from China, not competing for final assembly manufacturing business against China!

7 thoughts on “Don’t get too excited about the Aztec Tiger

  1. Pingback: Don't get too excited about the Aztec Tiger | F...

  2. Yea, the lack of aggregated value to mexican production is a serious issue, but there is another set of things to maintain an optimistic view of Mexico: the new reforms will launch a new set of investments to gain market, the new government seems determined to use several tools to improve mexico’s competitiveness like the recent cut in interest rates by Banco de México and the coordination with the private banks to release more loans to create new companies. Nowadays exist a big investment in the reform of the judiciary system, a fundamental key in the development of any country. Slowly, but education level is improving and the science budget is finally getting up. Basically the State is back trying to coordinate the economic development after eighteen years of mediocre governments just sitting and begging for investments. The challenge is launch an strong wave of innovation and science in the new Mexican economy. But democracy has changed the rules in Mexico: the government must produce economic growth or nobody is gonna vote for them.

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  4. I have to disagree. The labor statistics shown are based on “official minimum wages” that almost nobody pays anymore in Mexico. The minimum wage policy encompasses many rural communities in Mexico and it is actually designed as a “minimum” not as the standard wage. Our labor laws are also a lot more protecting of our workers than China´s, we have real labor unions who can actually close down factories, we don´t have a child labor explotation problem as it is the case in China and India and other Asian nations, Wages in Mexico are a lot higher but the advantages of setting up shop in the country lie in the many free trade agreements we have signed with countries all over the world, with rising transportation costs, with labor productivity, a friendly regulatory framework, political and economic estability, sound fiscal policies in Mexico also attrack investors, many people don´t really believe statistical data provided by the Chinese governemnt, while they manipulate their currency and doctor their economic data, Mexico has built solid institutions that provide reliable data and our currency floats in world markets.

    There are a lot of manufactured goods with aggregated value produced in the country, the fact that you can set up a shop in Mexico and import parts from other countries to complete your manufacturing thanks to free trade agreements it´s an advantage for a business and for the country as well, there´s a transfer of technology there. Most car makers supply their cars from mexican parts manufacturers, as it is the case with VW, some of their cars like the Jetta, are more than 90% made in México. Crysler is producing cars to export to China. But there´s also a booming aerospace industry too with more aircraft manufacturers moving operations to the country.

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