Mexican trade with the United States

Significance: Akey to modern Mexican-U.S. trade relations lies in the 1994 North American Free Trade Agreement, more commonly known as NAFTA, which was signed by the United States, Mexico, and Canada. NAFTA’s purpose is to eliminate restrictions such as tariffs and quotas on trade and investment among the three participants. After the agreement went into effect, trade among the three countries increased significantly.
As neighbors sharing a nearly two-thousand-mile border through two centuries, the United States and Mexico have long been important trade partners. The United States has long been Mexico’s biggest trading partner, and after the adoption of the North American Free Trade Agreement (NAFTA) in January, 1994, the economic and trade ties between the two countries grew even stronger. The change has been particularly important for Mexico, whose trade with the United States tripled in value after NAFTA. By 2008, nearly 90 percent of Mexican exports were going to the United States, and about 56 percent of Mexico’s imports came from the United States. Moreover, NAFTA provisions liberalizing foreign investment restrictions have also resulted in a marked increase in American investments within Mexico.

Mexican Manufacturing

In 1965, the Mexican government established a program to encourage the building of factories to assemble and build products primarily for the countries from which they import the products’ materials. Known as the maquiladora program, after the Spanish word for factory, this program became the centerpiece in Mexico’s manufacturing industry. By 2008, approximately three thousand such plants were providing jobs for more than 500,000 Mexican workers—mostly near Mexico’s northern border with the United States.
Maquiladoras import most of their materials and equipment (generally from the United States), assemble and manufacture products, and then export the finished goods, often to the countries from which they imported the materials. Mexico imposes no duties or taxes on the incoming materials. After NAFTA was signed, manufacturers no longer even had to pay duty on the value-added portions of their finished goods.
Maquiladoras produce electric equipment, clothing, plastics, furniture, appliances, and automobiles and auto parts. The maquiladora industry is second only to oil in producing income from exports to foreign countries. In addition to the United States, other countries, including Japan and Germany, have established factories in Mexico to take advantage of North American Free Trade Agreement and Mexican government inducements under the maquiladora plan. The program’s chief attraction has been the low cost of Mexican labor. However, new competition from low-cost Chinese labor has caused a substantial number of Mexican factories to close.

Petroleum

During the early twentieth century, oil was Mexico’s most important export to the United States. American and British oil companies furnished the technical skill and capital necessary to develop the Mexican oil industry after commercially exploitable reserves were discovered by a British railroad building firm around the turn of the twentieth century. The British formed the Mexican Eagle Oil Company, which played a major role in the industry during this period. The British were joined by other oil companies from the United States and Europe. In 1938, however, the Mexican government, under president Lázaro Cárdenas, expropriated the foreign oil companies and nationalized the industry. The United States, Great Britain, and the Netherlands promptly instituted a boycott on Mexican oil, but increased demand for oil brought on by the outbreak of World War II saved Mexico’s oil industry. Eager to block the sale of Mexican oil to Nazi Germany, the Allies lifted their boycott on Mexican oil.
The Mexican oil industry is managed by a government bureaucracy, Petróleos Mexicanos—better known by its acronym, PEMEX. The tenth-largest oil company in the world, as measured by revenue, PEMEX provides one of its country’s major sources of tax revenue. Along with Canada and Saudi Arabia, PEMEX is one of the three major suppliers of oil to the United States, but it has been slow to drill new wells and is plagued by corruption from within as well as by interference from the politically powerful Petroleum Workers Union.

Agriculture

Immediately before NAFTA was signed in 1994, the two-way trade in agricultural products between the United States and Mexico amounted to about $6 billion per year. By 2008, that figure had quadrupled, to about $24 billion annually. In January, 2008, all restrictions on agricultural products traded between the two countries were lifted, so the value of the trade was expected to continue to increase. The exchange of agricultural products between Mexico and the United States has been mutually beneficial. Mexican exports to the United States have been mostly fresh fruits, vegetables, and beer. American exports to Mexico have been mostly corn (maize), soybeans, meat, poultry, and tobacco.
Some Mexican peasants have complained about the competition they have encountered from American agricultural products because of the cost benefits of mass-production methods in the American agricultural industry. Farmers in Mexico’s interior states have been at a further disadvantage in shipping their products because of the comparatively poor railroad and highway facilities. However, American NAFTA officials have contributed millions of dollars to help improve marketing facilities for local Mexican farmers.

Tourism

Mexico’s third-largest generator of foreign exchange is tourism, which has grown rapidly during the early twenty-first century. With long coastlines on both the Atlantic and Pacific Oceans, extensive and spectacular archaeological sites, and many vibrant cities, Mexico has a great deal to offer to tourists. By 2008, as many as two million foreigners—mostly Americans—visited the country each year. The Mexican government established a long-term plan for tourist development, under a department called Fonatur, to ensure development without causing damage to the environment. The government has made a point of establishing resort areas throughout the entire country to spread the economic benefits from the tourism industry as widely as possible.
A serious downside of the tourist boom has been an increase in attacks by criminal gangs on foreigners, many of whom use their visits to Mexico to seek out recreational drugs. This problem is aggravated by the efforts of Mexican gangs to use tourists to carry illicit drugs into the United States. The problem has become so acute that the government of Mexico has employed its army to combat criminal activity.

Immigration into the United States

The immigration of Mexicans into the United States has long complicated U.S.-Mexican trade relationships. Thousands of undocumented aliens, the overwhelming majority from Mexico itself, have crossed the U.S. border illegally in search of jobs in agriculture, factories, restaurants, hotels, construction, and American homes. Many American employers have come to rely on undocumented workers, especially in agriculture. Since September 11, 2001, American concern about illegal immigration has been heightened by the fear of terrorists infiltrating the United States from Mexico. To help slow the influx of illegal immigration, the U.S. government began building a chain of fences along the Mexican border.
Of great importance to the economy of Mexico is the substantial amount of money that immigrant workers in the United States remit to their families in their homeland. The approximately ten million Mexican laborers in the United States remit at least $20 billion a year to Mexico. These remittances constitute one of the most important sources of foreign exchange in Mexico. An estimated 6 percent of all Mexican households benefit from this influx of U.S. money. Families in four states in particular— Michoacán, Durango, Guanajuato, and Zacatecas—account for more than one-third of the total amount. Any substantial reduction of remittances resulting from tighter border controls could have a drastic impact on many Mexican families.
Virtually all studies of Mexican immigration into the United States agree that a continual supply of Mexican workers to the United States is critical to the economies and trade development of both countries. Mexico on its own cannot provide the necessary jobs for its rapidly growing population, and the United States cannot fill all the unskilled and semiskilled jobs required for its own economic expansion.