Since the 1990s, the Mexican economy has changed from a closed introvert system that relies on oil exports on an open export -oriented power plant. Mexico is now far from the largest manufacturers of exporters in Latin America and is an export profile of an developed country. This does not mean that Mexico does not resemble Latin -American neighbors in many other ways, such as large inequality and violence.
The Mexico export and manufacturing sector has been transformed as part of the NAFTA/USMCA framework, where goods and services can flow freely between Mexico, the United States and Canada. Such flows are referred to as “rules of origin”, which require a minimum added value in the region; That is, if finished products are imported to Mexico, say, China cannot be exported to the United States or Canada again as they do not meet the minimum local value requirements.
It is not clear how Trump’s tariffs will work, not least because they constantly change his opinion, but it is presumed that what he is trying to achieve is to put manufacturing jobs from Mexico to the United States. This raises many questions:
- It takes four to five years to physically move a plant – it cannot be done in months
- American workforce is much more expensive – perhaps on average four times as high
- In the United States, health costs are probably the only biggest question that affects labor costs and no solution in the sight
- There may be a problem with the availability of workforce in many factory floor categories, as the US workforce has moved from production as a previous generation from agriculture.
- Where inputs pay more, customers also have to increase prices and it affects competitiveness and can make many companies viable
In our opinion, the purpose of transferring production to the US is valid, but for success, other measures, such as the National Health Plan, to reduce costs, and a system of apprenticeship training training, are generally skilled workforce and long -term planning, which requires cooperation with the production sector. In fact, the proposed tariff system raises a number of legal issues to companies that made investments according to the NAFTA/USMCA system.
Let’s look at the figures:
This is the data of 2023 www.oec.world (UN Comtrade) and presents Mexico with a $ 67 billion trade in goods. It consists of a huge $ 174 billion surplus and a significant surplus of the United States, with a surplus of $ 26 billion with Canada. On the other side, there is a big shortfall with China ($ 77 billion) and the lack of South Korea and Vietnam. For countries such as Germany, Japan and Italy, it is presumed to invest in Mexican production to export to the United States and Canada. However, for China and South Korea, data suggest that Mexico is used to enter the North American market and that their exports may not meet the requirements of “rules of origin”. Note that Vietnam is actually only China and South Korea’s re-exporter.
In our opinion, Trump’s tariffs will not work in the short term and therefore will not be done as the most affected companies are owned by the United States and will do the Trump administration issue. If the United States were to use stricter controls to “rules of origin”, they would reduce the flow of Mexico of goods from China, South Korea and Vietnam.
Of course, the US trade deficit with Mexico and the general trade deficit of the United States remain unresolved, and the question is whether sustainable with cattle dollarization is an open question. If the rest of the world floods the US $, the United States will have to pay for imports in the foreign currency acquired through exports to drastically reduce imports.
In a previous post, we commented on Brazil, where they drew attention to the high state stake in the economy, which is unique in the developing world, and how it could burden the economy, which has led to stagnation over the last decade. Our proposed medicine was for the government to begin privatization of the pension system, which would lead to an increase in private savings and investments.
Now it looks specifically in Mexico and then compared to Brazil:
- Lower federal revenue and expenses
- Lower regional (state) taxes
- Private pension cleaning
- In exports the higher share of manufacturers
- Much lower the real interest rates
- Similar numbers in manufacturing employment, which means that sharing is higher in Mexico
- Much lower tax wedge for employment – 20% in Mexico and 40% in Brazil
- Similar murder ratio but differences in reasons
- Mexico gets a much higher tourism
- Mexico gets much bigger transfers
- Mexico spends less on health care
- Mexico produces about half as much electricity as Brazil
In Mexico, there are the above -mentioned aircraft for those involved in insured employees, which are individual retirement accounts to which both employers and employees contribute and controlled by regulated fund managers. Another question is that in Mexico, VAT is collected at federal level, with states and redistribution with municipalities, while in Brazil ICMS is launched by states along with federal sales taxes.
Usually we would say that Mexico works on a much more budgetary basis than Brazil, which results in higher growth rates in the medium term during normal events. However, the Damocles sword of Trump’s tariffs and the United States’ trade deficiency hangs over Mexico, while Brazil is relatively immune.
Read our full meaning to the https://www.marketresearch.com/latin-report-v4296/economy–mexico
Paul Dixon founder of the Latin report. His economic articles are very widely read on a wide range of topics, and often ranked search results for months, and even after the first publication.
Latin report It attempts to interpret the huge amount of information available to understand the country economies. We write our reports from a long -term point of view and the country has been monitoring the country’s development for decades. We most of all let the data tell the story with the commentary of political events to illuminate the characteristics of the data. The purpose of the Latin meaning is the purpose of expression Views that keep their value over time and therefore need to help companies make long -term decisions. This is comparable to competitors’ reports with current analysis reports that are continuously reviewed.