The Mexican economy is making solid gains as it recovers from the financial crisis that struck it in December 1994. The country’s gross domestic product grew by 5.1% in 1996, and climbed at an impressive annual rate of 7% during the first six months of 1997— well above expectations and quite an achievement from its 6.2% decline in 1995.

As the economy continues to expand, Mexican trade and investment opportunities will grow.

U.S. Exports to Mexico Are Rising

U.S. merchandise exports to Mexico have risen significantly. In 1996, they reached almost $57 billion, a 23% increase since 1995, with 44 out of 50 U.S. states experiencing export growth.

And as the demand for U.S. products has grown, the Mexican share of U.S. world exports has become quite impressive. For example, Mexico now accounts for 10% of U.S. worldwide exports of agricultural crops; 23% of U.S. apparel and other textile products; 21% of rubber and plastic products; 17% of fabricated metal products; and 13% of electronic and electric equipment.

Despite the recession, increases in sectorial bilateral trade have also become significant. From 1993 through 1996, U.S.-Mexican automotive bilateral trade jumped 185.6%; textile and apparel trade increased by 119%; and agricultural exports plus imports rose by 44%, benefitting both U.S. and Mexican businesses.

The prospects this year are even better. In the first four months of 1997, U.S. exports to Mexico virtually equalled U.S. exports to Japan — the second largest American export market — even though Japan’s economy is 12 times larger than Mexico’s.

Best Export Prospects

The 10 top U.S. exports to Mexico are:

• Automotive parts and equipment
• Franchising services
• Building products
• Pollution control equipment
• Chemical production machinery
• Telecommunications equipment
• Apparel
• Management consulting services
• Aircraft and parts
• Electronic components.

Florida Exports to Mexico Are Also Up Significantly

Exports from Florida also performed well. During the second quarter of 1997, Florida’s exports to Mexico jumped 27%, compared with the same period in 1996, and reached $225 million. By industry, Florida exports that performed exceptionally well included: apparel and other textile products, which increased 130.1%; industrial machinery and computer equipment, 100%; transportation equipment, 97.3%; food and kindred products, 89.5%; textile mill products, 57%; and electronics and equipment, which expanded by 42%.

NAFTA Three Years Later

The task of isolating the economic effects of NAFTA after a little more than three years of operation is challenging. While Mexico’s tariff cuts have been substantial, its market-opening rules are not fully phased in.

The challenge is compounded by several significant events that have directly affected trade flows. These were: the strong performance of the U.S. economy, Mexico’s financial crisis since the 1930s, and the implementation of tariff cuts by the United States agreed to in the Uruguay Round and implemented in the World Trade Organization (WTO).

Nevertheless, according to a recent study released by the Clinton administration, “NAFTA had a modest positive effect on U.S. net exports, income, investment and jobs supported by exports.” This conclusion is shared by several other studies.

NAFTA’s Effect on Mexican Trade Barriers

Under NAFTA, Mexico has reduced its trade barriers on U.S. exports significantly and dismantled a variety of protectionist regulations. Before NAFTA was signed, Mexican tariffs on U.S. goods averaged 10%. Since then, Mexico has reduced this by 7.1 percentage points. This has increased the attractiveness of U.S. goods over European, Japanese, and other foreign country products.

In comparison, U.S. tariffs on Mexican goods averaged only 2.07% and more than half of Mexican imports entered the United States duty-free. Since then, U.S. duties have come down 1.4 percentage points.

NAFTA’s Effect on Key Sectors

Since NAFTA went into effect, U.S. suppliers have seen their share of Mexican imports grow from 69.3% to 75.5%. The greatest gains are in textiles, where the U.S. share has increased 17.2 percentage points to 86.4%; the transport equipment sector, which gained 19.2 percentage points to 83.1%; and the electronic goods and appliances sector, up 7.5 percentage points to 74.3%.

Weigh All the Factors and Know the Risks

Before entering or expanding into any country, it’s important to ask the right questions — and understand the risks. For example, should you adapt your product to better suit Mexican needs? What are the currency risks? How will you get paid?

It’s important to know the answers to these and other questions, and to understand the factors that could mean the difference between a business success or failure.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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