Mexico rising, Canada downfall

On exporte beaucoup moins, car nous sommes en compétition avec des conditions salariales et inférieures aux nôtres avec des gens aussi brillants et productifs que nous.

On ne s’en sort pas, tant aussi longtemps que l’on ne réduit pas notre niveau de vie, tel que les Américains sont en train de le constater.

Belle perspective …

Extrait de: Mexico rising, The Economist, Nov 26th 2012, 14:59 by R.A. | WASHINGTON

LAST week I wrote a short post on Mexico's improving economic fortunes and its bright outlook. Conveniently, the most recent issue of The Economist features a special report on Mexico, which includes a long look at the country's promising economy. The changing dynamics of global market potential are indeed part of the story:

The price of oil has trebled since the start of the century, making it more attractive to manufacture close to markets. A container can take three months to travel from China to the United States, whereas products trucked in from Mexico can take just a couple of days. AlixPartners, a consultancy, said last year that the joint effect of pay, logistics and currency fluctuations had made Mexico the world’s cheapest place to manufacture goods destined for the United States, undercutting China as well as countries such as India and Vietnam.

Here's the striking result:


Mexico raising

Cost is an issue, as the above quote indicates, both in terms of the price of shipping and in the wage gap between Mexican workers and competitors in Asia. But time also matters, particularly given the development of regional supply chains. An August Free exchange column noted:

The second unbundling has yet to banish distance. In a different paper, Messrs Johnson and Noguera find that supply-chain fragmentation has been greatest among neighbours. This has given rise to regional industrial clusters. Regional trade agreements are partly responsible, but time costs may be more important. ICT improvements have also made production more nimble, capable of just-in-time manufacturing and frequent design changes. Timely shipments of components are indispensable. Indeed, an analysis by David Hummels of Purdue University and Georg Schaur of the University of Tennessee estimates that a day in transit is equivalent to a tariff of between 0.6% and 2.3%, with the largest effects for parts and components trade. Industrialisation is now within easy reach of poor countries, provided they’re within easy reach of industrialisation.

The evolution of world trade over the past two decades has been rich with surprising and fascinating developments.

Certainement pas à l’avantage des pays industriels,
ce que l’on ne fait pas pour satisfaire l’oligarchie.

Extrait de: Mexican market potential, The Economist, Nov 21st 2012

TYLER COWEN draws our attention to a story in the Wall Street Journal:

Six years ago, Mexico was the world’s ninth largest exporter of cars. Today the country is ranked fourth—behind Germany, Japan and South Korea—with exports expected to total more than 2.14 million vehicles this year.

One in 10 cars sold last year in the U.S. was made in Mexico. Next year, every new taxi in New York’s fleet—made by Nissan Motor Co. —will carry the “Hecho en Mexico” label. Mexico is now exporting vehicles to China, and even helped Japan keep up with orders after last year’s tsunami.

Mexico’s Economy Minister Bruno Ferrari boasted that a batch of new factories planned by car makers will help Mexico surpass South Korea in a few years.

Let's apply the "extent of the market" analysis to Mexico's improving fortunes. The focus of trade policy is certainly relevant:

By throwing open its market under the North American Free-Trade Agreement (NAFTA) with the United States and Canada and a host of other bilateral trade accords, Mexico has become a base from which carmakers export to both halves of the Americas, and worldwide. Volkswagen, for example, makes all its Beetles and Jettas there. Although Nissan produces some vehicles at a Renault plant in Brazil, most of those it sells in Latin America come from two plants in Mexico. In all, 2.1m of the 2.6m vehicles produced in Mexico last year were exported.

By contrast, in Brazil the main aim of public policy has been to push carmakers to build local factories from which to supply the country's huge domestic market. Only 540,000 of the 3.4m vehicles manufactured in the country last year were exported. Around three-quarters of Brazil's car exports go to Argentina. Mercosur, to which both countries belong, has long aspired roughly to balance trade in cars and car parts between the two.

I wonder over the long run whether other factors aren't also working in Mexico's favour. America's weight in Mexico's market potential may be rising thanks to rapid population and economic growth in America's Sunbelt. Cultural and social ties are almost certainly rising across the two economies thanks to large-scale immigration from Mexico. The prospects for substantial convergence in incomes north and south of the border look better than they have in some time: a fascinating and heartening development.