Understand the economic ties between the United States and Mexico

By Christopher Wilson and Duncan Wood

The impact of trade and globalization on the average American has become a central issue in this year’s election. We heard measured, grounded, and serious criticism about the handling of issues such as currency manipulation and preparing our workforce to participate in the global economy, but the conversation also elicited many passionate and visceral, highlighting the intensity with which citizens feel the impact of economic change. Because of campaign rhetoric, Mexico has come to symbolize much of America’s encounter with globalization. Given that Mexico is the United States’ second-largest export market, third-largest global trading partner, and number-one source country for immigrants living in the country, this is understandable. Nonetheless, having become a high-profile issue in presidential elections, it is more important than ever that Americans have a clear and up-to-date understanding of Mexico and, in particular, US-Mexico economic relations.

In this spirit, the Institute of Mexico is pleased to announce the launch of a new project, Growing Together: US-Mexico Economic Ties, which explores the bilateral economic relationship in detail to understand its nature and impact on the United States. We commissioned original research on the employment impact of bilateral trade on the U.S. economy, conducted original analysis using government and academic datasets, and undertook an in-depth review of existing research regarding economic relations between the United States and Mexico. Starting today and throughout the fall of 2016, the Mexico Institute will publish the results of our research on our website and social media, using the hashtag #USMXEcon.

Our study concludes that the economic relationship with Mexico, while not without challenges, delivers tangible benefits, enhancing the competitiveness of American businesses, creating jobs in the United States, and generating savings for the average American family. Key findings include:

• The United States and Mexico are no longer content to sell each other finished products. Instead, they build things together, using a regional system of manufacturing production that involves supply chains that criss-cross the US-Mexico border. This allows both countries to effectively combine their individual comparative advantages into an ultra-competitive regional system, thereby enhancing North America’s ability to compete on the global stage.

Figure 1. Value of foreign inputs for domestic production, in billions of dollars (1995-2011)

In 2011, the most recent year for which data is available, Mexican industries consumed $140 billion of US intermediate goods, and US industries consumed $111 billion of Mexican inputs. This is direct evidence of joint production between the United States and Mexico on a large scale.

• Nearly five million American jobs depend on trade with Mexico. Our economic model shows that if trade between the United States and Mexico were interrupted, 4.9 million Americans would be out of work. This is a net figure and includes jobs directly and indirectly related to trade, meaning it takes into account, 1. Jobs currently supported by the production of goods for export that would be lost if we stopped trading with Mexico; 2. Jobs that would come back to the United States to produce goods that we currently import; and 3. Jobs currently supported by the income that individuals and businesses save by having access to cheaper imports. Some of the net job gains associated with bilateral trade are in manufacturing, but the vast majority are actually in service sectors, including everything from finance to healthcare and retail. Indeed, the job gains associated with exports are more or less offset by those lost to import competition (1 outweighs 2 in the list above), leaving the major gain really coming from fact three, the availability more competitively priced inputs for US businesses and products for consumers. For example, when an American family saves $100 buying a washing machine built in Mexico and uses that money to go to the movies, the US-Mexico trade helps support the jobs of the ticket seller, the movie manager, and can -even being Brad Pitt. . The economic model we used, which is a version of Purdue University’s GTAP model modified and operated by The Trade Partnership, of course cannot tell us precisely what portion of Brad Pitt’s income is supported by US trade. Mexican, but it can examine these types of impacts at the aggregate level across the entire US economy.

• There is no doubt that the United States is transforming economically, and middle-class workers in the United States have fallen on hard times over the past two decades. Real median household income, although up sharply over the past year, is still below its pre-recession peak in 2007 and below the previous peak in 1999.[1] Manufacturing workers have been particularly hard hit, with employment in the sector falling 28% since 2000. Employment in the service sector, on the other hand, is on the rise, suggesting that the United States are going through structural change, largely driven by productivity improvements in the manufacturing sector. that make it possible to produce more goods with fewer workers. Commerce, although a much smaller driver than technology, is pushing in the same direction, accelerating this structural shift towards more skilled service jobs. Researchers at Ball State University recently found that 87% of manufacturing job losses between 2000 and 2010 were caused by productivity increases, while 13% were trade-related. [2] These transformations are positive for the economy as a whole, but clearly difficult for workers who have the skills to fill the jobs of yesterday rather than the jobs of tomorrow.

• The United States has administered trade adjustment assistance for many years to help workers whose jobs and industries face increased competition from imports, but it is a small program with a success story. limit. Given the scale of the challenge of training and retraining America’s workforce to be prepared for the jobs of the 21^st Century, a much broader whole-of-government strategy is urgently needed. It is no longer enough to help workers who have lost their jobs because of imports from other countries. Instead, we must face the fact that structural change in the American economy requires an economic adjustment program, a more holistic approach to smoothing the negative effects on American workers that takes into account the multiple dimensions of transformation.

• Mexican foreign direct investment in the United States has nearly doubled since 2007, and companies supported by Mexican investment in the United States employ more than 123,000 people.[3] These investments impact all fifty states and include a diverse group of industries, from construction and mining to television and financial services. Grupo Bimbo, for example, which is the world’s largest and Mexican-owned bakery company, operates more than 70 bakeries and employs 27,000 people in the United States, managing well-known brands like Sara Lee and Entenmann’s. Even the US auto industry, which has received a lot of attention in recent major investment announcements in Mexico, is receiving significant Mexican investment. Nemak, which supplies a quarter of all light vehicles in the world with aluminum engine components, and Rassini, one of the world’s leading producers of brakes and suspensions, operate plants in Kentucky, Michigan, India. Ohio and Tennessee.[4]

• Certainly, sometimes companies close their factories in the United States and move to Mexico. However, there is strong evidence that US corporate investments in Mexico are more often associated with job growth in their US operations than with job losses. Theodore Moran and Lindsay Oldenski analyzed trade and investment data between the United States and Mexico from 1990 to 2009 and found that, on average, a 10% increase in employment in business operations Americans in Mexico leads to a 1.3% increase in the size of their workforce in Mexico. in the US, a 1.7% increase in US exports and a 4.1% increase in US research and design spending.[5] There is also evidence that the jobs created in the United States due to this phenomenon require higher skill levels, which reinforces the need for training and retraining of workers to benefit from this transition and qualify for these higher paying positions. .

Basically, the question is whether the United States and Mexico are best conceived as competitors or partners. Undoubtedly, some elements of the relationship are zero-sum, but our deep ties, ranging from cross-border supply chains to migration to cooperation to prevent terrorist attacks, mean that at the deepest level, United States and Mexico are truly partners. Millions of American workers already benefit from this relationship. With the right approach from decision-makers on both sides of the border, these benefits can be expanded and extended to millions more. The United States and Mexico depend on each other more than ever for our economic well-being and competitiveness. We will sink or swim together in the global economy.

Christopher Wilson is associate director of the Mexico Institute at the Woodrow Wilson International Center for Scholars. Duncan Wood is director of the Mexican Institute at the Woodrow Wilson International Center for Scholars.

[1] Federal Reserve Bank of St. Louis, 2016, https://fred.stlouisfed.org/series/MEHOINUSA672N.

[2] Hicks and Devaraj, 2015. The authors used worker productivity levels in the year 2000 to calculate the hypothetical number of employees needed to achieve actual 2010 production levels: the United States should have employed about 20, 9 million workers with no productivity gains, but in reality only ended up employing 12.1 million people.

[3] Dual: US Census Bureau, 2016; employment: Mexican Secretaría de Economía, using the IMAP database, 2015.

[4] Andrew Selee, “The Money Goes Through the US-Mexico Border, But It Goes North”, Washington PostJune 1, 2016, https://www.washingtonpost.com/posteverything/wp/2016/06/01/money-is-flowing-over-the-us-mexico-border-but-its-going-north/?utm_term=.c044f3d177ca.

[5] Theodore H. Moran and Lindsay Oldenski, “How American Investment in Mexico Increased Investment and Jobs at Home” in NAFTA 20 years laterWashington, DC: Peterson Institute for International Economics, November 2014.