Is Mexico the "New" China?

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[Editor's Note: Money Morning Chief Investment Strategist Keith Fitz-Gerald's new book - "Fiscal Hangover" - will be published on Monday.]

When it comes to global manufacturing, Mexico is quickly emerging as the "new" China.

According to corporate consultant AlixPartners, Mexico has leapfrogged China to be ranked as the cheapest country in the world for companies looking to manufacture products for the U.S. market. India is now No. 2, followed by China and then Brazil.

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. BrendettNC | November 13, 2009

    I cant believe that major companies are out sourcing to Mexico from the USA.
    I want buy any products from these companies if is made in Mexico period!
    THE UNTIED STATES NEEDS TO STOP THIS ACTION!
    BAN THESE COMPANIES FROM SELLING THERE PRODUCTS BACK THE THE USA!

    • Rodrigo B. | January 19, 2010

      So, you should stop buying half of the things you use everyday…inlcuding your car, or pay more for the same things.

    • javier lives in miami fl, | September 2, 2010

      Exports $1.057 trillion f.o.b (2009 est.)[7]
      Export goods agricultural products (soybeans, fruit, corn) 9.2%, industrial supplies (organic chemicals) 26.8%, capital goods (transistors, aircraft, motor vehicle parts, computers, telecommunications equipment) 49.0%, consumer goods (automobiles, medicines) 15.0% (2009)
      Main export partners Canada, 13.2%; Mexico, 8.3%; China, 4.3%; Japan, 3.3%. (2009)[8]
      Imports $1.558 trillion c.i.f. (2009 est.)[7]
      Import goods agricultural products 4.9%, industrial supplies 32.9% (crude oil 8.2%), capital goods 30.4% (computers, telecommunications equipment, motor vehicle parts, office machines, electric power machinery), consumer goods 31.8% (automobiles, clothing, medicines, furniture, toys) (2009)
      Main import partners China, 15.4%; Canada, 11.6%; Mexico, 9.1%; Japan, 4.9%; Germany, 3.7%. (2009)[8]

    • javier lives in miami fl, | September 2, 2010

      mexico buys from usa 8.3 % of the total sales. while

      china buys from usa 4.3 % of the total sales….. now

      china sales to usa 15% and

      mexico sales to usa 9.1% ..if you know how to count money,you should understand this,if not please; let the country do the money and go to sleep…

    • anthony | January 13, 2012

      So why doesn't Mexico help its poor with job Skills? Why the agriculture farmer is forced into new living conditions or even worse become homeless? Corporations need land because Gm. Ford Nissan and Whirlpool need land to build on.
      Why hasn't a proposal been planned prior to the deals made about the poor living in this soon to be developed area? So many Mexican citizens need help. It’s about the necessary implantation of betterment. A serious attitude change is needed. Not ignorance of the Mexican issues. …………
      Some clear principles. A conscience focus regarding the poor living in impoverishment will be the answer. We all need answers. So why can’t governments seek a resolution?
      I have to ask this! Doesn't the Mexican Government care about its people? Do they need to seek the aid of human traffickers who are paying dirty politicians and some Federal ales kickbacks to turn their eyes when they cross borders? I see a people with little choices. I see a worker running to the US because Mexico isn't giving them what they need. There are many poor that are trapped between the borders, the jobs, the hunger, and the drug cartel that use them for cheap or free labor. And to them, the drug cartels have little value on human life. . The loss of life for work and, at the hands of Drug Lords. It’s a bunch of bull the Mexican Government can’t find or control the Drug cartels. Kind of like we don’t know where Bin Laden is “that’s another subject”.
      What is the solution for all sides?
      Why can’t Mexico elevate its people?
      Why not create social programs today with education for a better Mexico tomorrow?
      Why not for its population outside of the major cities?
      I see people who want to survive and be independent. I see people strong in faith and culture. These people take risks coming here for BASICS such as; food, clothing, a roof over head, clean water, and electricity.

      An all-around better Mexico for everyone. The People will elect better people to rule them!
      Here’s something funny; maybe someone will be typing a comment some years from now when US citizens try to cross over even to flee into Mexico.

  2. Adigun Ajayi | November 13, 2009

    The key to stalling the growing unemployment and down turn of the economy is for the US to limit the influx of products manufactured outside the US or put a tariff on them that will remove the market advantage or edge over products made in the US. Otherwise, we will keep growing other economies around the world and later start borrowing from them for our survival.

  3. Owen K. | November 13, 2009

    Mexico will never be a "New China" for several reasons. First is the corruption that exists in the Mexican Government and the Police. President Fox may be gone, but the corruption that permeated Mexico under his Administration is not. Secondly, Mexico has a more unstable currency situation than China. Third, Mexico's oil reserves in the Gulf region are now in perminant decline. Fourth, poverty is still rampant in Mexico as Illegals continue to "run" the border into the U.S. If the Mexican economy was truly "on the rise", this illegal influx would decline. There is no indication that it has. Fifth, Mexico suffers from lack of infastructure. Clean water is a problem along with a lack of good roads, hiways, and electrical power in many areas of Mexico. China has outsourced certain industry only because it is beneficial to that specific industry. Don't look for China to outsource heavy industry to Mexico. In addition, Mexico has very little heavy industry and must import most of its steel and concrete. Finally, Mexico does not posses the political clout to negotiate economic treaties as China has. (I'm referring to the treaties with African nations for mineral and drilling rights.)
    As a final case in point; I once worked for a manufacturer that tried to outsource some of its product lines to Mexico. We got those product lines back due to the fact that the manufacturers in Mexico could not hold tolerances and could not maintain the quality assurance that we had in place when those products were outsourced.
    There are too many issues that exist with the Mexican economy for me to expect that they will ever become a "new China."

    • Dennis C | December 13, 2009

      After 15 years of managing businesses in Mexico and China you essentially have each of your facts backwards. I have started, developed and managed multiple businesses in Mexico without ever paying a single kickback, something essentially impossible to do in China. Mexico's pollution control is significantly superior to China, and Chain has 10 times the poverty of Mexico. Mexico's exchange rate relative to the US is on its tenth year of stability. Mexico has excellent technical capabilities when properly managed (some thing the bulk of US and Asian companies in Mexico do very poorly). Mexico does need to improve its infrastructure and subcontractor base

    • Rodrigo B. | January 19, 2010

      Fortunately these facts can not stop the market to flow by itself…if it is profitable and convenient for some USA companies to manufacture in Mexico, it will be done, doesn't matter any opinion. The real smart persons are those enterpreneurs that despite of the facts that you mention are capable to have very profitable bussines by manufacturing in Mexico and also achieve good quality…do you want examples?…just turn your head arround and find by your self a great amount of products since cars and electronics.

    • John | February 1, 2010

      mexico is fighting its crime and corruption and mexico has no lack of nfraestructure you are just an ignorant person as i know

  4. Gringo in Mexico | November 13, 2009

    BrendettNC, I suppose you meant, wont instead of want. With your idea, we would have to ban GM, Ford, Dodge, Whirlpool, GE, Bayliner, etc., etc., I do prefer to buy things made in Mexico than in any Asian country. Anyway, I believe we can't stop this, fortunately.

  5. Cristobal Martinez Lozano | November 13, 2009

    Perhaps another long term benefit of this foreign manufacturing influx into Mexico will be the growing realization by the Mexican nationals that that illegal entry into the USA will no longer be necessary if they can find family wage jobs in their home country. This may in turn also improve our jobs market here, if we can survive the Marxsit/Socialist onslaught of the Chicago politician's fraudulant occupancy of the Oval Office !!

  6. John Wright | November 13, 2009

    BrendetteNC response to trade with Mexico is typical of the shortsighted and ignorant position taken by many politicians. Trade with Mexico can be beneficial to both the U.S. and we will see a reverse immigration as Mexicans return to jobs in their native country.

  7. john kyneur | November 14, 2009

    Why the big gasps from US citizens over what appears to be a new announcement about American frims going MEXICAN- this is not new it's been going on for a long time I think even MAYTAG went Mexican a while back after going Canadian I suppose big national Firms like MAYTAG who sell all over the world may go Chinese if not already Mexican and Indian.Five years ago I bought what I was told in Australia at a major chain of Whitegoods retailers that the MAYTAG washer I was about to purchase was the last line of genuine made in USA and Canada units -I belive that what I also read on the web at the time validated this.

  8. Loyd Vernon | November 14, 2009

    Although there may be much that Mexico could offer, the escalating violence may take its toll. I really think further south (Brazil) will become the next booming economy. A huge natural resource base, including new giant oil deposit discoveries, and a rather stable government, with improving economic conditions overall.

    Regards,

    Loyd from Sugar Land, Tx

    • MisterZ | February 2, 2010

      Brazil is more violent than Mexico: 25 murders per 100,000 per month, vs. 10 in Mexico.

      Brazil has a lower GDP per capita and a higher inequality index. Look it up.

      What happens is that you know a lot of (mostly wrong) information about Mexico, and you have no information whatsoever about Brazil. Hence your distorted mental map.

  9. boonies | November 15, 2009

    would it maybe- just maybe- lead the avalanche of Mexican illegals to go home and seek employment back there…just praying out loud.

  10. Geoff Thomas | November 16, 2009

    What is wrong about Mexico? We now live in a world economy, if Mexicans buy American produce then Americans should buy Mexican goods.
    That is how the world works.

  11. Mike Barrett | November 17, 2009

    This is great news! NAFTA was originally setup to compete with the European Union… a trading block that "nearshores" to each other all the time and threatens the economic strength of the US. To hear that Mexico is surpassing China is wonderful news for all North Americans. Also, the more stabalized Mexico becomes – with jobs – the fewer illigal immigrants will take American jobs. We need more of this.

  12. Pablo Herdez | November 20, 2009

    Hi I lived in Mexico a couple of years ago, and had the opportunity to exerience the current mexican situation at first hand. In addition to Owen K, I agree on everythig he posted, and can only say that investing in Mexico is like going to Vegas and gamble your whole paycheck, the economy in Mexico is not optimal to invest right now. It is true that wages are lower than they are in china, but it is for the high (unofficial) unemployment rates. In other words, most of the opulation works, some have legal and some have illegal jobs. Due to the increasing illegal Associations (mafias/cartels, and etc.) that currently control the market, and have already surpassed guvernmental control. For example, border cities (where maquiladoras or factories are) and cartels operate, have been shut down economically by cartels. Hundred of thousands of people have migrated (non-illegally) to manage their businesses from the U.S., or even start a whole new bussiness (invest in the U.S.) and abandon everything they had behind. Because they are been pursuit by cartels, in other words mexican capitals/investments (by investments, I mean, very important investments-corporation like- that have banished from the market) are leaving the country. It is true that investing in Mexico would be a better idea because it would facilitate trade to South America. But, insurgent activity has been found across the country and an imminent Mexican Civil war seems to be inevitable. In addtion to the SECURITY huge issue, a vast percent of population in Mexico lack education higher than elementary school. The importance of education in Mexico affects indirectly the quality of the products being produced. The higher the education level, the higher the capabilites of a person to perform cetain tasks. To ilustrate, a 10 year old child manufacturing your next laundry machine, or your next plasma tv, apply the same to an adult with the same education level, he/she JUSTmight be able to get the job done. In contrast toe China, most of the population has minimum high school degree to be able to work at a factory, and a bachelor if the job requires one. In contrat to Mexico, China enforces this minimum standards. The problem with product quality from products manufactured in China if the poor quality of the matrials used to manufactures millions of different products wiht the same material. Compare both instances, which is better, a product that has poor material, but would work for a decent time. Or one that is a gamble, but has a better material. The U.S. could invest in mexico, produce products to supply the U.S., but sooner or later a social explosion will take place. and the relation with china will be lost comletelly. Furthermore, The U.S. is forced to mantain a close relationship with China nad Japan because both countries posses trillions of dollars in U.S. treasury bonds awaiting to be cashed the moment The U.S. lowers imports or breaks the trade agreement. These trillions of dollars were purchased by China and Japan to prevent the U.S. currency to keep falling, and to avoid the U.S. to begin to manufacture in-house products and sell them in other markets. You see if the dollar falls, manufacturing becomes cheaper, exports would increase while imports decrease. These bonds are the very reason that current DEPRESSION has not been as severe as the great depression, The U.S. is living in borrowed money. For these and many other reasons, Mexico will never be a new China because Mexico does not have the infraestructure, security, efficient government, nor education level to sustain such economical power.

    • Alberto | December 14, 2009

      Dear Pablo and Owen,

      Good for you that you have lived in Mexico and have experienced what is going on in some parts of the country. I wish you had anything good to say but to mention that Mexico will "never "be a new china" is a long time. It's almost like you wish Mexico would never improve.

      I don't know if you or any of the readers ever recall saying that any product from Japan was bad quality and with time they became the best. China not long ago was not regarded as a competitor or competitive in any area. China DID NOT have the infrastructure but as new investments poured in, the country started investing in new trains, roads etc. and with time it became the world manufacturer, competitive and llater in time became on the of largest lenders to the USA. So, people and countries change and can improve just as they can decline.

      As usual, it just seems like our neighbors from the USA like to talk condescendingly to Mexico, Mexicans and anything related to Mexico. If this is your support to improve our region, thank you but no thank you. I'm sure China wasn't in such good shape either when it started getting all that new investment 30 years ago but they had one advantage: They did not have US media bashing it as much as they do it with Mexico. Good for India and good for Brazil. They don't have a poweful neighbor to bully them because they can. I don't understand this attitude from the US and the people there.

      This never ending perception inhibits investments and blocks business prospects for Mexico. US media is still the strongest in the world and unfortunately for Mexicans, peoples from other nations are now buying that perception as well.

      Fortunately not all Mexico is as some nay-sayers describe here so if any reader ever considers outsourceing to Mexico, please come and do your own due dilligence and forget about other "experts"who might've been here before. Rembember that people and countries change and although Mexico might the right place for some time of businesses it certainly has a lot of advantages for others.

      Thanks

      • Janet | March 10, 2010

        Alberto, you are correct that many US citizens have a negative view of Mexico which is based on opinion, not fact. Having worked for companies with Maquila facilities in Mexico (both Juarez and Monterrey) for over 15 years, I can say that my experience with Mexico-based manufacturing has been very positive. There is a reason major corporations like Carrier, Whirlpool and others are manufacturing in Mexico – they want both lower manufacturing costs AND excellent quality.
        Our Mexico production is extremely important to the international strategy of the company I currently work for. We not only see our Monterrey facility as key to serving customers in the US and Mexico, but also as a gateway to other countries due to the fact that 90% of Mexico's trade is covered by Free Trade Agreements, unlike the US where only 35% is covered.
        It is unfortunate that so many comments on this article were so negative and insulting to the people of Mexico. All I can say is that not all US citizens feel the same way, and some of us recognize the benefits to both the US and Mexico that have resulted from growth of the manufacturing sector in Mexico.

    • Rodrigo B. | January 19, 2010

      It is difficult to uderstand but the fact is that the manufacturing and in general many activities are becoming global by segments….so, if many manufacturing segments are moving to Mexico (unavoidable despite of many personal opinions) other segments are growing in the US to equilibrate the production activities, more related with management, planning, logistics, etc. some countries are becoming more manufacturing countries, some focused on electronics, some on foods, etc. some other more in machines o specialiced goods and that doesn't mean a lack of oportunities to the US, that means different oportunities to the US.

  13. Jose Javier Loza | November 25, 2009

    Anything that is good for Mexico is also good for the U.S. Many of the problems America faces are due to having a next door neighbor that is not in the same economic level. If the Mexican economy improves, the economic and social conditions in both countries will improve. I agree with Mr. Wright when he states that: Trade with Mexico can be beneficial to both the U.S. and we will see a reverse immigration as Mexicans return to jobs in their native country. It is amazing that so many Americans have such a negative view of anything having to do with Mexico. Just as the European countries realized, if your neighbors are doing well, then your whole neighborhood area does well. North America is our neighborhood and I for one would like to see all of my neighbors improve their living, working, social and economic conditions.

  14. Sergio Santana | November 26, 2009

    Sadly some people are ignorant and think that Mexico is just the north border cities as Juarez or Tijuana, I live in the center of Mexico and the situation here is quite different than in the border, Yes, the Mexican borders are ruled by drug cartels but that's because they have a huge business there selling drugs to the US drugs consumers, US is the country with most addicts and money to buy drugs in the world.
    In Mexico we have cities as Aguascalientes, Guadalajara, Leon, Toluca, Monterrey, where companies from the entire world can find people with good education levels, and where the security is not a big problem as in the border (I’m sure that is safer to live in Guadalajara or Aguascalientes than in several US cities). One proof of this are all the companies that are here doing business as GM, Nissan, TATA, Intel, Continental, Ford, BW, Whirlpool, etc.
    I know Mexico has problems as any other country in the world, but please don't believe all that news or movies says, If I did that I would believe US is a country full of crazy people and illiterates as Roger Moore and news says, I have been there and have lots of friends and colleges there and know that is a normal and beautiful country with normal people as a lot of countries in the world including Mexico and China.

  15. Sergio Santana | November 26, 2009

    Sadly some people are ignorant and think that Mexico is just the north border cities as Juarez or Tijuana, I live in the center of Mexico and the situation here is quite different than in the border, Yes, the Mexican borders are ruled by drug cartels but that's because they have a huge business there selling drugs to the US drugs consumers, US is the country with most addicts and money to buy drugs in the world.
    In Mexico we have cities as Aguascalientes, Guadalajara, Leon, Toluca, Monterrey, where companies from the entire world can find people with good education levels, and where the security is not a big problem as in the border (I’m sure that is safer to live in Guadalajara or Aguascalientes than in several US cities). One proof of this are all the companies that are here doing business as GM, Nissan, TATA, Intel, Continental, Ford, BW, Whirlpool, etc.
    I know Mexico has problems as any other country in the world, but please don't believe all that news or movies says, If I did that I would believe US is a country full of crazy people and illiterates as Michael Moore and news says, I have been there and have lots of friends and colleges there and know that is a normal and beautiful country with normal people as a lot of countries in the world including Mexico and China.

  16. Sergio Santana | November 26, 2009

    Sadly some people are ignorant and think that Mexico is just the north border cities as Juarez or Tijuana, I live in the center of Mexico and the situation here is quite different than in the border, Yes, the Mexican borders are ruled by drug cartels but that's because they have a huge business there selling drugs to the US drugs consumers, US is the country with most addicts and money to buy drugs in the world.
    In Mexico we have cities as Aguascalientes, Guadalajara, Leon, Toluca, Monterrey, where companies from the entire world can find people with good education levels, and where the security is not a big problem as in the border (I’m sure that is safer to live in Guadalajara or Aguascalientes than in several US cities). One proof of this are all the companies that are here doing business as GM, Nissan, TATA, Intel, Continental, Ford, BW, Whirlpool, etc.
    I know Mexico has problems as any other country in the world, but please don't believe all that news or movies says, If I did that I would believe US is a country full of crazy people and illiterates as Michael Moore and world news says, I have been there and have lots of friends and colleges there and know that is a normal and beautiful country with normal people as a lot of countries in the world Including Mexico and China.

  17. Clemencia Dominguez | December 21, 2009

    I can percieve the negative thoughts about these ignorant people that they don't see more far than their nose. I believe that Mexico as any other country can bring the economic up, the problem is that people are like doogs "they don't eat and they don't let others to eat." I agree that Mexico never will be China, but I can see that they can made bussines together and build better future for thoese that are in need of better living. So we need to be open mind and see things in all angles and not be ready to crusify inocent people like the "iligals" how some call them. Just think, if those people come to the U.S. is because they are demanding from thoese who have business.

  18. Ricardo Hernandez | January 15, 2010

    I lived in the US as engineering professional for four years and it was a great experience. Particularly learning experience was that I realized the media delivers strong stereotyped images of Mexico. I even started to be convinced myself that all Mexico was a tequila drinking, dusty, poor place. Trust me, we have paved cities, cars, cell phones and cable TV. Yes, unfortunately very poor areas exist, but also millions of people are living in active and efficient industrial areas in urban developments, buying goods and services, imported food and merchanize from US, drinking and dining in american franchise places — sorry, no Taco Bell, our tacos are far better–. I work in one of the most productive plants of the Company (incidentaly a US conglomerate) which provided huge profits to shareholders in the US. My house has heater and air conditioning, clean piped water and there is a park nearby; many other working people live in similar conditions. Just do the homework, dig a little under the surface, research better and will see Mexico amazingly different to what you see in the media.

  19. MisterZ | March 13, 2010

    The question is, will China become the new Mexico?
    Mexico already had a long stretch of double digit growth, back in the 50s and 60s, when it became an industrialized nation. Mexico has a significantly higher GDP/Capita than China, and a much lower inequality index, which is approaching that of the US, believe it or not.

    Americans judge Mexico on two variables: illegal immigration and drug trafficking. That's why they have a distorted opinion.
    If the US shared a border with China, you would not have 10 million illegal immigrants; you would have 100 million.

  20. Miguel S. | April 11, 2010

    All,

    What policies would you recommend to President Calderon about the relationship between Mexico and China?

  21. anthony | January 13, 2012

    THEY AREN'T THE NEW cHINA JUST cHINA'S means to gain more power and control because the U.S. gives China no#1 preferred status and Mexico has no tariff's for goods coming into the US. Oh by the way Canada is getting a sweet deal also. That's why we as American will be working for a new master soon.

  22. Jeff | November 2, 2012

    China has many undesirable factors such as poor working conditions, the lack of environmental standards, exploitation of labor etc. but they have one thing that Mexico does not – a work ethic. Mexico's No. 1 export is oil followed closely by drugs, violence and millions of their poor and uneducated.

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