Mexican Economy Booms from Trade

While most news headlines involving Mexico revolve around drug cartels, illegal immigration, and law enforcement, economists are noticing a new story south of the border. Trade between the United States and Mexico has been surging recently, including a 17 percent increase to a record level of $461 billion (USD) in 2011. Mexico is currently competing with China for the title of America's second-largest trading partner following Canada, and the Mexican economy became the top investment destination for the aerospace industry this year. Mexico's middle class, which is quickly growing to be the country's majority, has been responsible for much of the trade with the U.S. since they are buying record levels of American goods. According to Richard Fisher, the president of the Federal Reserve Bank of Dallas, Texas, Mexico is actually doing better than the U.S. from a macroeconomic perspective, which has resulted from the country efficiently controlling inflation, balancing budgets, and managing debt.

Although Mexico has recently poured billions of pesos into infrastructure, such as ports, railroads, refineries, and highways, foreign investors still express concerns about the country's risk factors. The Mexican government has notoriously struggled with enforcing the rule of law, reducing poverty, supporting wasteful telephone and media monopolies, closing the national oil industry to foreign investment, and inability to confront endemic corruption. The World Bank's 2012 annual "Doing Business in Mexico" report also looked unfavorably upon the Mexican economy, ranking it unusually low at 53rd among 183 countries. Other risk factors associated with investing in Mexico include the vulnerability of public-sector finances to decline in barrel price and oil reserves and the lack of investment and skilled labor that hinder the upmarket move of production.

In spite of Mexico's setbacks, trade with the United States has increased sixfold since the signing of the North American free Trade Agreement in 1994. The treaty, which eliminated tariffs for goods and eased the ability to invest across the border, is widely embraced in Mexico, with the last protest against it being in 2008 and the country's upcoming presidential elect Enrique Peña Nieto stating that he wishes to expand it. While Mexican exports prior to the treaty only reached $42 billion, the number has since soared to $263 billion in 2011, according the the U.S. Commerce Department. Nearly 80 percent of Mexican exports enter U.S. markets, such as crude oil, fruits, vegetables, television, cellphones, computers, and passenger vehicles.

The United States has also benefited from the NAFTA Treaty, seeing as exports to Mexico have multiplied as the Mexican middle class continues to buy more and more American goods. According to Christopher Wilson of the Mexico Institute in Washington, the Mexican and American economies are now trade partners rather than competitors, seeing as their economies are very integrated. The largest growth in the Mexican economy from 2009-2011 was seen in modern retail chains, most of which filled with American products. Mexico also bought $198 billion worth of U.S. goods in 2011, which is more than the amount of U.S. goods that Brazil, India, Japan, and Britain purchased combined. Since about 6 million jobs in the United States depend on trade with Mexico, it is clear that this trade agreement will continue to play a key role in both nations' economies, and could significantly grow any business looking to trade across the border.