Mexico’s Trade Comeback Largely Due to Liberalization

Mexico’s economy has regained trade competitiveness largely due to productivity enhanced trade openness or liberalization. 

That’s according to an article published at the IMF Finance.

Here is the intro

The U.S. market has long been critical to Mexico—not only to its manufacturing sector, but to its overall economic strength. When Mexico signed the North American Free Trade Agreement (NAFTA) nearly two decades ago, the greater access it provided to the U.S. market was a boon to the country’s manufacturing base, whose share of the country’s GDP grew by almost 4 percentage points in the five years following the signing of the treaty. In turn, Mexico’s share of the U.S. manufactured goods import market increased from slightly above 7 percent in 1994 to nearly 13 percent in 2001.­

Other factors such as the narrowing gap of labor costs and proximity to the US also contributed significantly in recouping markets previously lost to China’s influence

Nonetheless liberalization has been pivotal dynamic, again from the same article:

Mexico’s manufacturing base has also been buttressed by the economy’s openness. Mexico’s trade agreement network is one of the world’s largest; it has free trade or preferential trade agreements with 44 countries and has shown a strong commitment to avoiding the use of trade restrictions and ensuring unrestricted access to markets and intermediate inputs to companies operating in Mexico. Moreover, Mexico has signed international standards and quality agreements that facilitate the participation of local manufacturing companies in global supply chains, particularly in the automotive and aerospace industries.­

A number of the factors that have contributed to Mexico’s increased competitiveness and its recovery of U.S. market share are likely to be long lasting—or structural, as economists say. These include the locational advantage, improved unit labor costs from enhanced manufacturing productivity and increased labor participation, and trade openness that appear to have underpinned Mexico’s improved competitiveness in the U.S. market in recent years.

Mexico’s revived fortunes is an example that contradicts the views of mercantilism which relies on protectionism via inflation (currency devaluation), trade controls and myriad regulations. Economic freedom and not political control of the economy is the recipe to prosperity.