« Insights > Maquiladora

Mexico Says Gaining From Competitive U.S. Manufacturers

Admin | 04.09.2012

Mexico is benefiting from ties to “very competitive” U.S. manufacturers as low wages lure producers discouraged by rising labor costs in Asia, Deputy Finance Minister Gerardo Rodriguez said.

Mexico is benefiting from ties to “very competitive” U.S. manufacturers as low wages lure producers discouraged by rising labor costs in Asia, Deputy Finance Minister Gerardo Rodriguez said.

“Many companies are shifting their production capacity back into the U.S.” and adding manufacturing jobs at a “good pace,” he said in an interview in Moscow today, where he was attending a meeting of officials from the 21-member Asia-Pacific Economic Cooperation group.

Mexico is tied to the U.S. by the North American Free Trade Agreement that bolstered cross-border production chains. “Because of these linkages with the Mexican sector, we’re being pulled somewhat by those dynamics,” Rodriguez said.

After trailing growth in Brazil during the past decade, Mexico is poised to outperform Latin America’s biggest economy for the second consecutive year in 2012. Manufacturers are opening new plants in Mexico as wages in China rise and higher oil prices increase transport costs for Asian companies looking to tap consumers in the U.S., the world’s largest economy.

The peso fell 0.6 percent to 13.3879 per dollar as of 10:35 a.m. in Mexico City, the lowest level since July 26 on a closing basis.

Auto Investments

While Mexico struggled after China’s accession to the World Trade Organization a decade ago and during the financial crisis in the U.S., its biggest trading partner, the country has emerged stronger, according to Rodriguez. The nation won automaker pledges from January through April to invest $5.3 billion.

“We’ve gained the ground we lost to the U.S. market early on in the decade, and we’re hitting all-time highs in terms of market share into the U.S.,” Rodriguez said. Mexico’s traditional exports including cars, auto parts and appliances are also reaching growing markets in Asia as Mexican producers are better able to compete with China, Rodriguez said.

Russia, which will host the APEC summit in Vladivostok next week, has set trade liberalization and closer regional ties among priorities for the forum. Russia, the world’s largest energy exporter, hopes to see Asia account for half of its trade, taking Europe’s place now, First Deputy Prime Minister Igor Shuvalov said this week.

“A re-balancing of economic dynamics around Asia, around Latin America -- that is already the case when you look at the direction of capital flows,” Rodriguez said. “That’s a reality.”

Honda, GM

Automakers including Honda Motor Co. (7267), General Motors Co. (GM) and Ford Motor Co. (F) have announced investments needed to produce an additional 1 million vehicles in Mexico within three years, Carlos Guzman, head of ProMexico, the Mexican government’s investment-promotion agency, said this week. Pirelli & C. SpA (PC) and Nippon Steel Corp. (5401) have said they plan to open new parts plants focused on the auto industry.

“China has been experiencing some natural wage inflationary pressures, and at the same time they’ve had to appreciate in nominal terms their currency,” Rodriguez said. “This is part of the global balancing, and the global balancing has operated somewhat in favor of Mexico.”

Policy makers expect Mexico’s economy to grow 3.5 percent to 4 percent this year as expansion in the U.S., which buys 80 percent of its exports, remains steady, Rodriguez said. Inflation’s acceleration to more than 4 percent is “temporary,” with price growth set to slow in a few months as effects from a bird flu outbreak that hurt chicken and egg supplies recede, according to Rodriguez.

“We tend to think that the inflation effects that we’ve seen in Mexico are one-off price shocks, which will not repeat,” he said. “Inflation will continue to trend down as we move ahead.”

Source: http://www.businessweek.com