ARIZONA & MEXICO

lost revenue from petroleum exports sold in U.S. dollars and converted back to pesos. Notably, the peso
devaluation does in fact impact other sectors of the economy, especially consumer buying power and
cost of imports. In general, the World Bank now considers Mexico an upper middle income country, with
per capita GDP just under $10,000; per capita GDP is even higher in the State of Sonora, at $13,300.
Additionally, in terms of ease of conducting business (objective measure of business regulation and
enforcement), Mexico is currently ranked in the top quintile in the World Bank’s Doing Business 2016
report, placing Mexico at 38th out of 189 countries. For comparison, China ranks 84th and Brazil 116th. 8
Beyond overall economic productivity, some very relevant reasons exist as to why Mexico became a
more competitive manufacturing platform. The first is education. Mexico now graduates approximately
100,000 engineers per year according to the OECD, 9 providing a qualified workforce for manufacturers
across all sectors. Secondly, Mexico is more competitive primarily due to comparative labor costs,
vis-à-vis China. While labor costs have increased in both Mexico and China over the last 15 years,
productivity levels in China have not kept pace with wages, whereas in Mexico productivity levels have
done so. Bloomberg Business estimated the difference in wages adjusted for productivity between
Mexico and China to be about 29% as of 2015. 10 Thirdly, Mexico is more competitive due to the country’s
commitment to free trade. NAFTA was the catalyst for the increase in trade, and now Mexico exports
over $1 billion in goods each day, with over 80% of those exports destined for the United States. Beyond
NAFTA, Mexico holds free trade agreements with 46 countries that provide preferential access to markets
by reducing or eliminating tariffs. Additionally, Mexico is a Trans Pacific Partnership signatory, allowing
the country to reach 60% of global GDP with favorable trading conditions, 11 and thereby strengthening
Mexico’s position as a global manufacturing platform.
Free trade advantages are very evident in Mexico’s automotive sector, with Mexico being the world’s 7th
largest producer and 4th largest automobile exporter. Mexico’s free trade agreements are a key
reason why automakers, such as BMW and Audi, chose to expand into Mexico in order to reduce tariffs
on vehicles exported to markets around the world (see Appendix for timeline of new car plants in
Mexico). 12 Finally, market proximity provides Mexico with an enormous competitive advantage over
producers in Asia. Simplified logistics facilitate just-in-time deliveries and lower transportation costs,
both for inputs and outputs, and there is an inherent advantage to being located in or near the same
time zone as primary markets and corporate headquarters.
8
http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB16-Full-Report.
pdf
9
http://stats.oecd.org/Index.aspx?DatasetCode=RGRADSTY#
10
http://www.bloomberg.com/bw/articles/2013-06-27/four-reasons-mexico-is-becoming-a-global-manufacturing-power
11
http://www.wsj.com/articles/why-auto-makers-are-building-new-factories-in-mexico-not-the-u-s-1426645802
12
https://azmex.eller.arizona.edu/about/fast-facts
APRIL 2016 • ARIZONA TOWN HALL • ARIZONA & MEXICO • 22