As Auto Industry Expands, NAFTA Finally Pays Off for Mexico

In the early years of Nafta, Mexico benefitted from getting textile and low end component part factories. But foreign investment quickly dried up as American, European, and Japanese investors became far more interested in Asia, particularly China and India. The WTO agreement sealed Mexico’s fate and being passed over. Mexico’s economy went down, and crime in the form of drug cartel violence went up. But as the cost of doing business in China has been going up, Mexico has become a lot more attractive. Mexican wages are twenty percent lower than Chinese wages and it costs less to ship items from Mexico to the US than from Mexico to China. Mexico is the biggest Spanish speaking market in the world.

As a part of NAFTA, cars made in Mexico have special access to the US market. Of cars made in the NAFTA zone, Mexico already has greater market share than Canada. Currently, an additional 10 billion dollars is being invested in Mexico’s auto industry, mainly by German and Japanese auto makers. The biggest investors are Nissan, Honda, Mazda, Toyota, BMW, Mercedes, and Volkswagon. Ford, GM, and Chrysler are spending an additional one billion to upgrade their plants in Mexico. In addition to being a part of Mexico, in recent years Mexico has negotiated a large number of free trade agreements. Mexico has made more than 100 free trade agreements, more than any other nation than Israel. The rapid growth of car sales in other parts of Latin America has tremendously benefitted Mexican exporters . The Mexican domestic market is now recovering after a long slump, and automakers are planning on further developing this market. The Mexican government has promised to reform Mexico’s banking industry, making it easier for Mexicans to take out auto loans to buy cars. Mexico is now the world’s 4th biggest exporter of automobiles, behind only Germany, Japan, and South Korea.

The boom in Mexico’s auto industry has produced other changes in Mexico. Much of the early industrial investment after NAFTA was created was in the North of the country. The new plants are in the interior of the nation. This allows much better access to the ports Manzanillo, Veracruz, and Lazaro Cardenas. The economic activity generated by the auto exports out of these ports encourages further development. And now that Mexico is known as a major exporter of cars, that encourages massive infrastructure investmen t and other developments in order to sustain economic growth. The budget also includes increased social spending. The major auto investment in Mexico is triggering a number of changes in Mexico politically and economically.

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