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Is Mexico Following in China's Footsteps in the Trading Industry?

Posted on Wednesday, March 2nd by Pallet2ship logo

Mexico and the United States of America have been trading partners for more than one century now, a partnership Mexico has been thriving off of. Thus, in an era of trade agreements and shifted economic resources, it has the potential and opportunity to become as great an economic power as China. In fact, the two countries share a common history in the economic context, a history that revolves around a massive workforce operating within the confines of a stagnant economy. However, China has managed to find the resources to become one of today's main economic exponents and stand up to world economic powers such as the United States. But how far can Mexico reach in its attempt to thrive off of its trading activities? It all depends on a selection of factors, but unfortunately, there are a number of fundamental criteria it seems to fail to meet.

For starters, it should be noted that the United States has the means to compensate for its trade deficit, at least partially. Those means lie in its services. The United States can be identified as one of the three parties that have signed the NAFTA (North American Free Trade Agreement) Treaty, alongside Mexico and Canada. According to this treaty, the three economic powers can develop economic partnerships and assist each other in their exploitation of their goods and services as economic tools. However, the economic relationship between Mexico and the United States started way farther back in time and has been successful enough to justify the prospects of Mexico reaching a similar kind of economic potential as China in this context. Undoubtedly, the North American Free Trade Agreement has played a significant role in Mexico's evolution within the economic world over the past two decades. Despite it causing Mexico's trade deficit to increase over these twenty years, which many invoke as a counterargument in this debate on Mexico's position within today's economic context, it has ensured the elimination of a number of burdensome laws and thus a smoother trading activity.

In terms of natural resources, Mexico has got a significant amount of highly affordable oil and natural gas, which allow it to develop a range of other much sought after resources to be exported worldwide, particularly to countries like the United States. In addition, it now has the opportunity to increase its production and therefore its economic power considerably over the coming years on account of it finally allowing foreign investment in the oil production area after seventy-five years of restrictions being set in place.

As far as the costs are concerned, the taxes imposed by the Mexican law are significantly lower, contributing thus to the overall development of an environment that encourages business activity. In fact, the costs, in general, are working in Mexico's favour in the sense that the labour force is much cheaper here as compared to that in the United States, to begin with. It should be noted that this particular financial aspect goes hand in hand with that of productivity, another area where Mexico has the upper hand over its Asian competitor. According to the statistics, the productivity of Mexican workers in terms of manufacturing goods is higher than that of the Chinese, as is their resourcefulness, particularly in the context of their wages.

In addition to this, Mexico's geographical position recommends it as a preferable trading partner for the United States over China. Unsurprisingly, trading operations between the United States and China involve not only elevated costs, but extended delivery times as well. More specifically, some shipments may require whole weeks to reach their final destination, which tends to cause notable inconveniences. Apart from the time effectiveness factor, reduced delivery times also allow for any changes that may need to be made at the last minute. These considerations alone constitute a solid argument in favour of Mexico as an ideal trading partner for the United States in the detriment of China.

However, there are a number of other respects in which Mexico has got the lower hand in its direct economic competition with China. One of these respects has to do with its population, which is highly relevant in the context where it provides the labour force. The population of Mexico is lower than half of that of the United States and incomparable to that of China, but still bigger than that of Brazil, which gives it the upper hand in its direct competition with Brazil to become the main economic power south of the United States.

Unfortunately, the political framework is not favourable to Mexico either in the sense that the Mexican government does not have the same amount of control over the country's economy as the Chinese counterpart does over the Chinese economy and even less so in the borderline areas. As expected, this causes insecurity among business owners and investors alike. This context is tightly connected to Mexico's social framework, which stands out as being equally insecure. While the United States has managed to reduce the scale of its organised crime since the 20s-30s, Mexico is still a long way off, despite the murder rates dropping over the past few years. The rule of law has failed to provide the desired results so that crime syndicates are still thriving.

Overall, there are a significant number of arguments that tilt the balance in favour of Mexico becoming one of the main trading partners of the United States and the second biggest, if not the biggest economic power in the Western Hemisphere in ten to twenty years' time. The increased productivity levels, its geographical position, its increased availability of resources, among others, all recommend it as a reliable trading platform and a top class economic player. However, Mexico's progress within the economic world is slowed down considerably by the relatively ineffective rule of law in this country, which causes significant reason for concern and therefore insecurity among business owners and investors. Yet this progress, however slow, is guaranteed and invariable.

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