Business, Economics and Jobs

The ties that bind the Mexican and US economies

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(Image: flickr user: Randal Sheppard (cc: by-sa))

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Today, at least 70 percent -- the overwhelming majority -- of Mexico's exports goes to the US market. And US businesses invest nearly $100 billion dollars a year in Mexico's economy.

The economic crisis in the US has been a wrecking ball to the Mexican economy, which has taken the biggest hit in Latin America. As unemployment soars, the Mexican government is estimating a six to seven percent contraction in GDP this year.

"The US economy goes down, hurts the Mexican economy; but in return, as the Mexican economy struggles to get back on its feet, it also slows down our recovery," said Andrew Selee, Director of the Mexico Institute at the Woodrow Wilson Center.

Three quarters of Mexico's exports to the US are tied to manufacturing. Auto making, electronics and textiles are now highly integrated: Made in Mexico, sold in the United States.

"Mexico has become the shock absorber for the US economy, as the US and Mexico have formed a global production network," said Gordon Hanson, Director of the Center on Pacific Economies at UC San Diego.

But in the downturn, orders to Mexican factories are the first to go. The fluctuations in unemployment have been twice as high as corresponding industries in the US.

"So because we've moved the more volatile parts of production to Mexico, Mexico has bigger swings in its economy," said Hanson. "And the United States has smaller swings than we would have, absent that partnership with Mexico."

Puebla, Mexico, is a hub of manufacturing for US businesses. Assembling jeans and t-shirts is just one of Pueblo's manufacturing sectors. There are information technology companies, auto parts factories -- Volkswagen located the only North American plant here -- all geared towards the US.

At the start of the US financial downturn, Mexican officials assured the public the country could navigate the storm; but then Lehman Brothers collapsed and the crisis went global. Investors looking for safety bought dollars, dumped pesos. The credit crunch hit Mexico hard. US orders dropped dramatically, down 30 percent, and haven't recovered yet.

Julian Abed, Puebla’s representative for Hewlett-Packard, puts the blame north of the border. "You are looking at what happened in the United States with the irresponsibility of the bankers -- we the are the victims of what is happening."

"They want the Mexican wealth, they want the Mexican business, they want everything we have," he adds, "but they don't see the Mexican people."

What you see in Pueblo is more Mexicans going hungry since the downturn. According to the World Bank, about four million more across the country.

But still, many younger Mexicans support the partnership with the US. A generation of Mexican entrepreneurs is convinced the US economy will turn around soon, and they want a piece of the action.

Francisco Rivera runs Boneterra RYT, a family-owned business that produces high quality socks, hats, scarves and baby clothes for the Mexican market. Sales for the business have held steady, even in the downturn. Boneterra hasn't had to fire a single worker, or cut salaries.

Rivera believes Mexico has to offer more than cheap labor and goods to benefit the most from free trade with the US. And for him, that means investing in his employees, training them to turn out quality products.

"We try to make them comfortable in this country, with a good job, good salary, good conditions," said Rivera.

Keeping workers at home hasn't been a main concern for the Mexican government, and a job in the US is still a priority for many Mexicans.

In New York City, at least 50 percent of Mexicans working in the city have come from Puebla. Mexican workers send dollars home, and these remittances are put to work in a migrant's home town. But last year, remittances fell for the first time on record, down by 20 percent. The crisis has devastated the Mexican migrant community.

Demetrius Papademetriou, President of the Migration Policy Institute, says Mexican workers lost most in construction and the service industries. "These are the exactly the sectors that got hurt early, deepest, and continue to lose jobs. That's where most of the bleeding has taken place, that is why the unemployment hit has been disproportionate for Mexicans, regardless of legal status."

The result is an unprecedented slowdown in migration from Mexico, while the workers in the US are under severe financial strain.

Joel Magallan, Executive Director of the Tepeyac Association, says US employers have given migrants reason to stay in New York, even in these tough times. "What I found from different employers ... they said, 'I don't want to lose my workers. Because I trust them, because they're trained, I'm pushing them to stay here.'"

When the economy rebounds, Papademetriou says the first workers who will be called back in New York will be Mexican workers. "The dependence now is indeed structural, it's embedded, and this is going to be very contentious when it happens."

This story is excerpted from the "America Abroad" 'NAFTA to Narcotics' documentary. To listen to more from the documentary, visit the "America Abroad" website.

Hosted by veteran public radio journalists Ray Suarez and Deborah Amos, "America Abroad" documentaries explore the critical international issues of our time. "America Abroad" can be heard on PRI Affiliate stations across the US, and as a podcast.

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