Keeping up

The Mexican export sector can’t compete with China’s.  Why?

In yet another reminder of the uneven evolution of the Sino-Mexican bilateral relationship, Mexican President Felipe Calderón visited China last week with the goal of encouraging investment in Mexico. The press took the opportunity to rehash the striking change in trade between the two countries since the turn of the century: Chinese exports to Mexico have grown from $569 million in 2000 to $28 billion last year; in contrast, Mexican exports to China have barely tripled, from $310 million in 2000 to $895 million last year. China replaced Mexico as the United States’ second-largest trading partner.

In other words, China’s export sector has thrived, while Mexico’s has stagnated. Why? Is it that Chinese goods have reduced global demand for Mexican manufactures? Is it simply that China has lower labor costs? In a recent paper, Gordon Hansen of the University of California at San Diego attempted to pinpoint the causes of growth (or lack thereof) in the Mexican export sector. His conclusion: Competition from China and economic slowdown in the United States bear significant responsibility for slow growth in Mexican exports since 2000.

Still, some of the problems are internal to Mexico, and some of the potential remedies—expanding the supply of skilled labor, reducing transportation costs, improving logistics capabilities, improving communications infrastructure, and strengthening property rights and protections for investors—are readily available to Mexican policy makers. Last week’s Agreement for the Reciprocal Promotion and Protection of Investment, which clarifies protections for capital flows between the two countries, was a step in the right direction in that it will encourage bilateral direct investment (which may provide needed capital and expertise for Mexican industry, as well as expand the Chinese market for Mexican products). By itself, though, it won’t be enough to reverse the erosion of Mexico’s share of the global market for manufactures.

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