Mexico as a Regional Asset

Americans tend to think of Mexico as a problem to be solved: a source of unauthorized immigrants, even as net migration from Mexico approaches zero; a source of drug-related violence, which is fair but often exaggerated; and as the cause of a “giant sucking sound” hoovering up U.S. jobs, though Mexico is a major consumer of U.S. goods and services. But as The Economist observes, Mexico’s economy is flourishing, and only partly due to its energy resources:

Latin America’s perennial underachiever grew faster than Brazil last year and will repeat the trick this year, with a rate of about 4% against less than 2% in Brazil. Mr Peña is aiming to get annual growth up to 6% before his six-year presidency is over. By the end of this decade Mexico will probably be among the world’s ten biggest economies; a few bullish forecasters think it might even become the largest in Latin America. How did Mexico achieve such a turnround?

China’s cut-price export machine sucked billions of dollars of business out of Mexico. But now Asian wages and transport costs are rising and companies are going west. “The China factor is changing big-time,” says Jim O’Neill, the Goldman Sachs economist who in 2001 coined the “BRICs” acronym—Brazil, Russia, India and China—much to Mexico’s irritation. China is no longer as cheap as it used to be. According to HSBC, a bank, in 2000 it cost just $0.32 an hour to employ a Chinese manufacturing worker, against $1.51 for a Mexican one. By last year Chinese wages had quintupled to $1.63, whereas Mexican ones had risen only to $2.10 (see chart 1). The minimum wage in Shanghai and Qingdao is now higher than in Mexico City and Monterrey, not least because of the rocketing renminbi.

A flourishing Mexico will create an enormous economic opportunities for the U.S. and other neighboring countries. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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