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| World Marketplace |
Labor Pains
Elsie Echeverri-Carroll
10/01/2005
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The often tempestuous relationship between the United States and Mexico is
less a true partnership than a marriage of convenience defined by the
opportunities and frictions of geographical proximity. The large cost reductions
U.S. manufacturers find in low-wage border factories, and the skilled jobs these
factories create, have traditionally nourished this union. More recently, issues
relating to illegal immigration, post-9/11 security needs and growing pollution
problems have led the United States and Mexico to maintain the status quo.
TOP VIEW
For more than two decades, the United States and Mexico have each benefited from
the former’s investment in the latter’s low-wage economy. But China now provides
even lower-cost production opportunities, and Mexico is finding it increasingly
difficult to compete for jobs. This, combined with the specter of a populist
shift in Mexico’s political culture after next year’s presidential elections,
leads some to question if Mexico can remain competitive. |
While opportunities and frictions will continue to create incentives to
sustain this marriage, new challenges increasingly threaten its long-term
survival. China has now replaced Mexico as the preferred location for U.S.-owned
manufacturing plants. When the Multi-Fiber Arrangement that imposed quotas on
imports of textiles and apparel to the U.S. market ended on January 1, China
quickly displaced Mexico as the largest individual apparel supplier to the
United States. Apparel is just the beginning: U.S. industries with factories in
Mexico are now turning their eyes toward the East. China offers not only cheap
labor, but also a much larger domestic market—more than 1 billion Chinese versus
106 million Mexicans. Moreover, the Chinese government is much richer—indeed, it
is a leading buyer of U.S. Treasury bonds—and it uses this purchasing power to
give special subsidies to foreign investors.
As Mexico faces the new reality
of low-wage global competition, its own domestic political climate could
contribute to further erosion of the country’s competitive edge. There is a
distinct possibility that Andrés Manuel López Obrador—a left-wing, populist
candidate who as mayor of Mexico City embraced the political slogan “First, the
poor”—could become president of Mexico in 2006. The potential for a leftward
drift in Mexican fiscal and social policies could spook potential investors and
further strain economic ties between Mexico and its politically conservative,
pro-business northern neighbor.
Given its proximity to U.S. markets and the special
relationship that Mexico enjoys with both Canada and the United States vis-à-vis
the North American Free Trade Agreement, some find it hard to believe that
Mexico is failing to attract the levels of foreign investment it has in the
past. In fact, Mexico has been a favorite destination of North American
manufacturers for so long that many have forgotten the pre-NAFTA economic and
trade turbulence that historically afflicted the border region. After World War
II, the Mexican government fostered an import substitution industrialization
model that imposed high protective tariffs and other barriers to imports. In
response, leading U.S. electronics and automobile companies located plants in
the largest Mexican cities in order to be able to sell their products in this
protected market. General Motors, IBM and Motorola, among others, constructed
manufacturing plants in Guadalajara, Monterrey and Mexico City, employing
thousands of workers. Yet Mexico’s protectionist policies fostered tremendous
inefficiencies in both the foreign and domestic companies that operated there.
For example, in 1981, one Sony color television plant in Japan produced in one
week the equivalent of Mexico’s yearly production of televisions.
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