Manufacturing In Mexico: China’s Rising Wage Tide Lifts Boats In Mexico

Manufacturing In Mexico is likely to be a far sturdier industrial ‘boat’ than many economists previously thought.  A recent study conducted by J.P. Morgan indicates that 10 years ago China’s wages were 237% less than Mexican workers.  That’s all changed now with an average manufacturer in Mexico closing the gap effectively to only 14% today.  Plus, with the continued high cost of trans-Pacific freight shipped from Asia to U.S. markets, Mexico is primed to capitalize on their proximity to American consumers.  This past year, Ford, Volkswagen, Mazda and Toyota have all made plans to expand auto production, with the aviation industry not far behind led by Airbus, Eurocopter and Bombardier.

While market-watchers have renewed concerns about a new recession on the horizon, manufacturing in Mexico will still likely gain from increased production.  Capacity has swollen from 11.3% (in 2005) to 14% (2010) in import growth to the U.S. which is likely to continue as companies relocate to Mexican shores, according to Gabriel Casillas of J.P. Morgan.   Factor in the projected appreciation of the Chinese currency, Mexico remains a good bet for growth even if somewhat less than previously projected.  Still, the drug violence, both real and perceived, will necessarily have to be controlled and reduced in the long term.  Not entirely confined to border regions though predominately there, the cartels suggest ongoing risk to manufacturing in Mexico although the greatest share of industrial development is in the safe central region of the country.


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