When NAFTA was first implemented in the early 1990s, the fear was that Mexican manufacturing would cost the US jobs and wreak havoc upon US industry. Mexico was viewed largely as an economic competitor that would pilfer US employment opportunities, businesses, and bring about the demise of national economic prosperity. This set of assumptions was merely the result of a misconception of the nature of the US-Mexico industrial alliance.
In reality, China has been a much more formidable concern in terms of low wages and competition for industry stateside. The past decade, however, has amply shown that the best way for US industry to meet this challenge is partnership – not competition – with Mexico through production sharing, or vertical specialization, which occurs when two or more countries bilaterally produce a product. In other words, Mexican manufacturing firms rely upon materials produced by US suppliers. The geographic proximity of Mexico and the US has actually led to greater opportunities for US suppliers vis a vis China. This is demonstrated by the fact that Mexican imports contain ten times more U.S. content than similar items manufactured by the Chinese. In fact, 40% of the United States’ imports from Mexico contain material inputs that originated in the United States.
Thus we see that “near-sourcing” manufacturing jobs to Mexico is, in a palpable way, beneficial to US industry, fostering a partnership that keeps high paying jobs in the US and sustains a demand for suppliers to feed the manufacturing done in Mexico that will then be exported, in most instances, back to the US. This partnership results in products that, when sitting on shelves next to those produced in China and other developing countries such as India, Brazil, Indonesia, Vietnam and Malaysia, are price competitive.
With the aforementioned in mind, it is no surprise that one in twenty-four US jobs is dependent on the Mexican maquiladora industry. Over 6 million US jobs are dedicated to supplying manufacturing operations in Mexico, which means there is significant opportunity for US suppliers to expand to meet the demand created by Mexican manufacturing activities.
Four segments in particular presently stand out as unique growth opportunities for US industry:
In 2011, the Mexican automotive industry achieved a growth rate of thirteen percent. As a result, the demand for US made parts and supplies is on the rise – these include items such as spare and replacement parts for gasoline and diesel engines, electrical parts, collision repair parts, gear boxes, drive axles, catalytic converters, and steering wheel assemblies, for example.
In 2010 alone, Mexico imported approximately $3.5 billion worth of products for the manufacturing of medical devices, $2 billion of which were from US suppliers. Key opportunities for medical products suppliers include anesthesia equipment, defibrillators, electrocardiographs, electro surgery equipment, incubators, lasers for surgery, etc.
Total Mexican packaging production reached 9.1 million tons of containers and materials in 2010 for a value of $10.1 billion, of which $2.5 billion came from US industry. There is significant growth potential for US suppliers of metal, plastics, glass, wood, and cardboard packaging materials.
$1.4 billion was invested in plastics manufacturing in Mexico in 2011, revealing a steady rise in the demand for plastic materials and resins. Additionally, Mexico exports Ethylene and imports Polyethylene, which shows the opportunity for US industry to supply polymerization technology.
Mexican manufacturing, although this may be counter intuitive to some, should be viewed as a partner to the US, rather than exclusively as a competitor.