Mexico Offers Businesses an Alternative to China

The January 11th edition of the Dallas Morning News offered an interesting interview of Roberta Jacobson, the Assistant Secretary of State for Western Hemisphere Affairs (a position within the U.S. Department of State).  Addressing the increasing economic clout of Mexico, Jacobson pointed to the growing integration between the U.S. and Mexican economies.  As an example, she stated that “a car produced in North America crosses the [U.S.-Mexico] border — at least, parts of it — eight times before it’s made.”  The result of Mexico signing the North American Free Trade Agreement (NAFTA), which took effect in 1994, has been a stronger economy and a rising middle class.  In fact, Mexico’s embrace of free trade has strengthened it to the point it is now viewed by many businesses as a more attractive source of labor than China.

Mexico’s rise relative to China is explained by a few factors.  First, wages have risen in China so much that there is now little discrepancy between prevailing wages there and in Mexico.  Second, transportation costs for goods made in China and sold in North America are substantial.  Finally, the rampant theft of intellectual property in China discourages businesses from doing any type of sophisticated manufacturing there.

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