Published On: Mon, Jun 2nd, 2014

As labor costs rise rapidly in China, American manufacturers are looking South to Mexico

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With labor costs rising rapidly in China, American manufacturers of all sizes are looking south to Mexico with what economists describe as an eagerness not seen since the early years of the North American Free Trade Agreement in the 1990s. From border cities like Tijuana to the central plains where new factories are filling farmland, Mexican workers are increasingly in demand.

American trade with Mexico has grown by nearly 30 percent since 2010, to $507 billion annually, and foreign direct investment in Mexico last year hit a record $35 billion. Over the past few years, manufactured goods from Mexico have claimed a larger share of the American import market, reaching a high of about 14 percent, according to the International Monetary Fund, while China’s share has declined.

“When you have the wages in China doubling every few years, it changes the whole calculus,” said Christopher Wilson, an economics scholar at the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington. “Mexico has become the most competitive place to manufacture goods for the North American market, for sure, and it’s also become the most cost-competitive place to manufacture some goods for all over the world.”

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Many American companies are expanding in Mexico — including well-known brands like Caterpillar, Chrysler, Stanley Black & Decker and Callaway Golf — adding billions of dollars in investment and helping to drive the economic integration that President Obama and President Enrique Peña Nieto have both described as vital to growth.

As that happens, some companies are cutting back in China and heading to Mexico to manufacture an array of products, like headsets (Plantronics); hula hoops (Hoopnotica); toilet brushes (Casabella); grills and outdoor furniture (Meco Corporation); medical supplies (DJO Global); and industrial cabinets (Viasystems Group).

And while in some cases a move to Mexico is tied to job cuts in the United States, economists say that the American economy benefits more from outsourcing manufacturing to Mexico than to China because neighbors tend to share more of the production. Roughly 40 percent of the parts found in Mexican imports originally came from the United States, compared with only 4 percent for Chinese imports, according to the National Bureau of Economic Research, a private research group.

 

Such comparisons appear to have blunted some of the scorn that greeted American companies moving production to Mexico in the 1990s. And yet, for the economic relationship to reach its full potential, experts, officials and executives say, the United States needs to make trade efficiency as important as border security. Long waits at the border continue to frustrate many companies. At the same time, Mexico needs to overcome longstanding problems like education, organized crime and corruption.

Source: http://www.nytimes.com/

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