nafta at 20 years us mexico chamber of commerce november 7, 2013
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NAFTA at 20 Years US Mexico Chamber of Commerce November 7, 2013. Animesh Ghoshal DePaul University. North America as a Competitor on the Global Stage. Mexico in 1982 Integration of US and Mexican Economies Concerns about China - PowerPoint PPT PresentationTRANSCRIPT
NAFTA at 20 YearsUS Mexico Chamber of CommerceNovember 7, 2013Animesh GhoshalDePaul University
North America as a Competitor on the Global Stage
• Mexico in 1982• Integration of US and Mexican Economies• Concerns about China• Other issues (demography, employment, border
crossing, security, education)• Changes in Mexico
Economic Situation in Mexico, 1982
Inflation 58.9%
Foreign Reserves, in months of imports 0.58
Debt service, as percentage of exports 31%
Trade, as percentage of GDP 25.6
GDP, constant 2000 US dollars $374 billion
Currency change against US dollar -67%
Integration of US and Mexican Economies
• Trade: Amount and Quality• Investment• Tourism•Population Movement
Integration of US and Mexican Economies: GDP Growth Rates
Growth of Trade, 1985-2012
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20112012
0
50000
100000
150000
200000
250000
300000
US importsUS exports
US Imports from Canada, China, Mexico
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20112012
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
CanadaChinaMexico
Quality of Trade: US “Vertical Integration” with Major Trading Partners
Exports($b)
Imports($b)
Total Trade($b)
Percentage of US Content in Imports
Canada 292 324 616 25%China 110 425 535 4%Mexico 216 277 493 40%Japan 70 146 216 2%
EU-27 265 380 645 2%
Intra-Industry Trade: Biggest US imports and exports with Mexico, 2012 (billions of dollars)
US Exports to Mexico US Imports from Mexico
Total 216.3 Total 277.7
334 Computer and elecronic products 37.9 336 Transportation equipment 71.6336 Transportation equipment 27.9 334 Computer and elecronic products 54.5325 Chemicals 23.6 211 Oil and gas 37.3324 Petroleum and coal products 20.8 335 Electrical equipment 20.4333 Machinery, except electrical 18.9 333 Machinery, except electrical 14.9331 Primary metal manufactures 10.7 331 Primary metal manufactures 13.9335 Electrical equipment 10.6 111 Agricultural products 7.8311 Food manufactures 9.8 339 Misc. manufactured products 7.2326 Plastic and rubber products 8.4 332 Fabricated metal products 6.8111 Agricultural products 8.3 311 Food manufactures 5.7
Intra-Industry Trade: Biggest US imports and exports with China, 2012 (billions of dollars)
Growth in Bilateral Investment: US FDI in Mexico
19821984
19861988
19901992
19941996
19982000
20022004
20062008
20100
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
US FDI stock in Mexico
US FDI stock in Mexico
Growth in Bilateral Investment: Mexican FDI in US
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20110
2000
4000
6000
8000
10000
12000
14000
16000
Mexican FDI stock in US
Mexican FDI stock in US
FDI Flows in Mexico, 1992-2011
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
5000
10000
15000
20000
25000
30000
35000
OECDUS
Overall FDI Inflows into Mexico
• Dependence on US has actually decreased since advent of NAFTA
• FDI inflows in 2011:• Total, from OECD: $19.6 billion• US: $10.6 b• Spain: $3.3 b• Netherlands: $1.5 b• Switzerland: $1.2 b
Mexican Concerns about Competition from China
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20112012
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
ChinaMexico
In some industries, Mexican exports displaced by China
2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Apparel and Household Goods-Cotton
MexicoChina
Market Share
In others, no evidence of displacement
2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
Complete and Assembled Trucks, Buses, and Special-Purpose Vehicles
MexicoChina
Market Share
In Some Industries, China’s Share Growing, but Mexico’s Share Growing Too
2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Other Industrial Machinery
Market Share
Mexican Concerns about Competition from China (cont)• China joined WTO in 2001• Faced reduced trade barriers (MFN)• Very low labor costs• In 2003, hourly labor cost in China $0.62, in Mexico $5.06
• Many maquiladoras shut down or moved to China, but…
• Labor costs in China have risen rapidly
In 2008, hourly labor cost in China $1.36 in Mexico $6.12 Since 2008, wages in China have increased 10-20 percent a year
“Labor Arbitrage” and Manufacturing CostsManufacturing Outsourcing Cost Index(Percentage of US Cost)
2005 2010 2015 (forecast)
Mexico 89 83 86
China 79 90 98
India 78 82 83
Production Advantages, China vs. Mexico
Advantages of Producing in China Advantages of Producing in Mexico
Lower labor costs (but rising rapidly) Closer to US—lower transportation cost
Larger domestic market Easier communication and supervision
Better infrastructure Shorter time to market in US
Stronger supply chain (some products) Greater flexibility for production changes
Managed (perhaps undervalued) currency
Better protection of intellectual property
State assistance (sometimes) More transparent regulation
Role of Distance: Travel Time to Northern US
Role of Distance: Travel Time to Major World Ports
Other Issues
• Tourism
• Demography
• Education: major factor in long term growth
Tourism and Population Movement
• Tourism: • Mexico #1 destination for US residents in 2011• Mexico 20.1m, Canada 11.6m, UK 2.4m
• Mexico #2 source of tourists to US in 2011• Canada 21.3m, Mexico 13.5m, UK 2.4m
• Population Movement and Social Networks• US: 12 m residents born in Mexico, 32 m of Mexican origin• Mexico: I m American residents (20% of total)
US: Ageing Population:Demographic Challenge
Mexico: Younger Population“Demographic Window”
Education: Average Years of Schooling for Population over 15
Productivity Trends: Changes in Gaps with US, 1980-2011, Annual Average (Source: OECD)
China
India
Indon
esia
Thailan
d
Repub
lic of
Korea
Malays
ia
Singap
ore Chile
Hong K
ong,
China
Dominic
an R
epub
licJa
pan
Panam
a
Urugua
y
Argenti
naCub
a
Costa
Rica
Mexico
Brazil
Colombia
Venez
uela
(Bol. R
ep. o
f)
El Salv
ador
Peru
Philipp
ines
Guatem
ala
Hondu
ras
Ecuad
or
Paragu
ay
Bolivia
(Plurina
tiona
l Stat
e of)
Nicarag
ua-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
Latin AmericaAsia
Mexico’s Economy Has Some Problems• Extremely high dependence on US, with 80% of exports
going to one country
• Trade agreements with many countries, but rules of origin make export diversification difficult
• Lack of competition in many industries
• Concerns about violence
But Mexico today very different from Mexico of the past• Composition of Exports
• Macroeconomic Conditions
• Inflation
• Exchange Rate
• Debt Service
• Interest Rate
Composition of Mexico’s Exports, 1982 and 2010
1982 20100
50
100
150
200
250
300
ManufacturingAgricultureOil
Economic Situation in Mexico, 1982 and 2011
1982 2011
Inflation 58.9% 3.4%
Foreign reserves, in months of imports
0.58 4.38
Debt service as % of exports
31% 6%
Trade as % of GDP 25.6% 64.7%
GDP, constant 2000 US $ $374 billion $722 billion
Macroeconomic Conditions in 2012, US and Mexico
US Mexico
GDP Growth 2.2% 4.0%
Inflation (CPI) 2.1% 4.1%
Current Account Balance (% of GDP)
-3.0% -0.6%
Budget Balance (% of GDP) -7.0% -2.4%
Interest Rate (10 year Govt.Bonds) 1.82% 7.75%
Currency Change Against Euro -5.5% -1.7%