Mexico’s gross domestic product (GDP) growth rate has made impressive gains as the economy recovers from the financial crisis that struck the country in December 1994. During the first six months of 1997, Mexico's GDP grew by a very strong annual rate of 7% which was well above expectations. Its climb to 5.1% in 1996 also surprised many analysts after it dipped 6.2% in 1995. As the economy continues to expand, many new Mexican trade and investment opportunities are emerging.

The Mexican Demand for U.S. Products Is Rising

As the Mexican economy builds momentum, U.S. companies are once again finding lucrative markets there. In fact, a larger percentage of U.S. goods are now being sold south of the border racking up impressive numbers. Mexico now accounts for 10% of U.S. worldwide exports of agricultural crops; 23% of U.S. apparel and other textile products; 21% or rubber and plastic products; 17% of fabricated metal products; and 13% of electronic and electric equipment.

From Mexico's perspective, U.S. goods are securing a greater share of their individual import markets. For example, since NAFTA went into effect, Mexico has imported more textiles from the United states than any other country. As a result, the U.S. share of Mexico's textile import market jumped 17.2 percentage points to 86.4% — the largest of any U.S. gain.

U.S. exports of transportation equipment also acquired a significant increased of the Mexican transportation import market by rising 19.2 percentage points to 83.1%. And impressive gains were made in the electronic goods and appliances sector, where U.S. market share rose by 7.5 percentage points to 74.3%. On average, U.S. suppliers' share of total Mexican imports grew from 69.3% to 75.5%.

Despite the recession, increases in sectoral bilateral trade have also become significant. From 1993 through 1996, U.S.-Mexican automotive bilateral trade jumped 185.6%; textile and apparel trade increased by 119%; and agricultural exports plus imports rose by 44%, benefiting both U.S. and Mexican businesses.

Overall, U.S. merchandise exports to Mexico are up significantly. In 1996, they reached almost $57 billion, a 23% increase since 1995, with 44 out of 50 U.S. states experiencing export growth. The prospects this year are even better. In the first four months of 1997, U.S. exports to Mexico virtually equaled U.S. exports to Japan, the United States' second largest export market, even though Japan’s economy is 12 times larger than Mexico’s.

As Mexico's economy continues to grow, its demand for U.S. goods, especially the following ten, will continue to offer U.S. exporters opportunity. These include: automotive parts and equipment, franchising services, building products, pollution control equipment, chemical production machinery, telecommunications equipment, apparel, management consulting services, aircraft and parts, and electronic components.

NAFTA's Impact Thus Far

It is difficult to accurately measure the short-term impact NAFTA, which was implemented only three years ago, has had on the United States for several reasons. For one, many Mexican and U.S. tariffs are still in the process of being phased out, but not yet eliminated. Complicating this is the negative effect Mexico's deep economic and financial crisis, steep fall in output, increase in unemployment, and drop in real wages has had on bilateral trade. Nevertheless, an overall performance of the accord has been made by the Clinton administration and private organizations with similar conclusions.

According to a recent study released by the Clinton administration, “NAFTA had a modest positive effect on U.S. net exports, income, investment and jobs supported by exports.” Several other studies have concluded that NAFTA has resulted in a modest increase in U.S. net exports, controlling for other factors. A new study by DRI estimates that NAFTA boosted real exports to Mexico by $12 billion in 1996, compared to a smaller real increase in imports of $5 billion, controlling for Mexico's financial crisis.

An earlier study by the Dallas Federal Reserve finds that NAFTA raised exports by roughly $7 billion and imports by roughly $4 billion. The relatively greater effect on exports partly reflects the fact that under NAFTA Mexico reduced its tariffs roughly 5 times more than the United States.

DRI estimates that NAFTA contributed $13 billion to U.S. real income and $5 billion to business investment in 1996, controlling for Mexico's financial crisis. These estimates suggest that NAFTA has boosted jobs associated with exports to Mexico between roughly 90,000 and 160,000. The Department of Commerce estimates that the jobs supported by exports generally pay 13 to 16 percent more than the national average for non-supervisory productions positions.

Without the Mexican recession, U.S. exports to Mexico would undoubtedly be higher, generating greater benefits to the United States. Mexico has made deeper cuts in its average tariff rate applied to U.S. products. Since the agreement was implemented, Mexico has reduced its trade barriers on U.S. exports significantly and dismantled a variety of protectionist regulations. Before NAFTA was signed, Mexican tariffs on U.S. goods averaged 10%. Since then, Mexico has reduced this by 7.1 percentage points. This has increased the attractiveness of U.S. goods over European, Japanese, and other foreign country products.

In comparison, U.S. tariffs on Mexican goods averaged only 2.07% and more than half of Mexican imports entered the United States duty-free. Since then, U.S. duties have come down 1.4 percentage points.

This article appeared in The Exporter, November 1997.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author of several books, and a nationally syndicated columnist on global business, trade policy, labor, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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