Mexico And International Trade Essay, Research Paper

IV. International Trade

IV.1 History

During World War II Mexico had really good concern dealingss with the United States. They provided a batch of natural stuffs, which were necessary to back up American military demands. In that clip the U.S. had an understanding with Mexico stipulating that the state would export its resources merely to the Allies. After WW II Mexico restricted imports in an effort to advance domestic growing, while defying foreign domination. In 1948 the authorities endeavoring to change by reversal the unfavourable balance of trade, devalued the peso. Imports non indispensable for industrial development were aggressively restricted. They did this to make a phase of autonomy. But still they obtained in 1950 an Export-Import Bank loan of $ 150 million for the funding of several undertakings to better transit, agribusiness, and power installations. This helped to better the whole economic state of affairs.

This policy led to an mean one-year growing rate of about 6 % for the following two decennaries. By the late 1960ss it was realized, that the domestic industries have become unenrgetic and inefficient because of the shelter from international competition.

1965: The Maquiladoras Program

To assist its fabrication sector, Mexico settled the Mexico & # 8217 ; s Border Industrialization Program. The BIP allows US and foreign companies to transport constituents and production equipment into Mexico, free of responsibility, for assembly or processing utilizing Mexican labour.

These Mexican installations are normally referred to as Maquiladoras, or in-bond assembly workss.

The BIP sought to pull foreign fabrication installations, engineering and know-how.

Over the past old ages, a big part of US-Mexican trade has been attributed to rapid growing in the Mexican Maquiladora industry.

In 1992, Maquiladora Plants numbered 2,113, using 469,614 Mexican workers.

The 1980 & # 8217 ; s: the variegation

In order to advance a ware trade excess, which would assist serve the foreign debt, and countervail shriveling oil grosss, Mexico adopted a policy of diversifying its economic base off from crude oil. The authorities & # 8217 ; s plan of advancing non-traditional manufactured exports was extremely successful. Whereas rough oil and oil merchandises accounted for some 75 % of Mexican export in 1983, their portion dropped to a low 34 % by 1988. Therefore, non-petroleum exports increased to 66 % of exports. Automotive merchandises, machinery and equipment, chemicals, Fe and steel merchandises, electrical and non-electronic goods, and fabrics and vesture became major vesture points.

Late 1980 & # 8217 ; s: Liberalized Trade in Mexico

In 1986, Mexico became a full member of the GATT, General Agreement on Tariffs and Trade, the international organic structure so responsible for regulating most international trade, now replaced by the WTO, the World Trade Organization. Since Mexico & # 8217 ; s accession to the organisation, its duty and non-tariff barriers have been well reduced. Mexico has eliminated many import licence demands, in many instances change overing them to tariffs, leting for their eventual decrease.

Growth of Mexican-US Trade

From 1986 to 1991, US exports to Mexico shooting up by 167 % . During this same period, exports to Mexico increased at about twice the rate of overall growing in US exports.

Manufactured goods have accounted for over three-fourthss of US exports to Mexico. Mexican imports from the US accounted approximately 70 % of entire Mexican imports.

From 1982 to 1990, the United States ran a ware trade shortage with Mexico. IT peaked to a high of $ 7.7billion in 1983. In 1991, The United States turned the bilateral shortage into a ware trade excess

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The most of this trade was effected with Texas, so California and Michigan.

Foreign Investment environment

The new openness of the Mexican economic system in the late 1980 & # 8217 ; s besides showed through the fact that more than two-thirds of Mexico & # 8217 ; s entire gross domestic merchandise ( GDP ) was made accessible to 100 per centum foreign ownership. This provided for limitless chances to US investors. While US-based houses continue to rank as the largest beginning of foreign investing in Mexico ( 1990 sum US direct foreign investing was $ 9. 4 billion ) , a turning list of companies from the United Kingdom, Germany, Japan, France, Switzerland, Spain and others are taking advantage of Mexico & # 8217 ; s new concern chances.

NAFTA ; the gap of markets

In December 1992, Presidents Salinas and Bush and Prime Minister Brian Mulroney of Canada signed the North American Free Trade Agreement -NAFTA- . The Mexican Legislature ratified NAFTA in 1993 and the pact went into consequence on January 1 1994, making the largest free-trade zone in the universe.

All barriers to merchandise such as duties have been abolished in the zone. Goods and services are traveling freely. Most of the trade occurs between Canada and the United States and The United States and Mexico. Indeed, Mexico and Canada don & # 8217 ; t merchandise a batch.

Because of the impact of NAFTA, Mexico has experienced many alterations in the manner the foreign policy is conducted: legalistic policy has changed to realistic policy, independency to interdependence, the political attack to a commercial one, Latin Americanism to North Americanism. Indeed, NAFTA didn & # 8217 ; t merely have commercial effects but besides political 1s.

A negative impact of NAFTA: the division of Mexico

NAFTA has created an economic disparity between the northern and southern parts of Mexico. American makers have favored seting up mills near the US-Mexican boundary line since the merchandises manufactured in their installations have to be shipped to the US and hence have to be near the boundary. This penchant is disadvantageous to southern and cardinal Mexico.

Disinvestment is certain to ensue in unemployment and poorness, which in bend is expected to take to a rise in offense in the part. The ultimate consequence of this unjust distribution of investing is the creative activity of two Mexicos, one of which becomes more Americanized while the other remains a Third World entity.

An illustration of Mexico & # 8217 ; s international trade public presentation: Government policy and the export public presentation of the Mexican car industry.

The Mexican car industry is easy beef uping its bridgehead in the international market. This tendency can be attributed to authorities policies geared toward planetary fight and accommodations made by transnational companies to alter in engineering and production methods.

In 1980, Mexico was bring forthing 490,000 motor vehicles whereas the production had risen to 821,000 units in 1990. This represents an addition of about 100 % .

Mexico & # 8217 ; s chief trading spouses

In 1993, Mexico & # 8217 ; s imports accounted for US $ 65,366,500,000 divided as follow:

– manufactured merchandises 94.2 %

– nutrient and nutrient merchandises 4.2 %

– Minerals and minerals merchandises 0.6 % .

On the other side, its exports accounted for US $ 60,882,000,000, with:

– metallic merchandises, machinery, and equipment 58.0 %

– petroleum crude oil 12.2 %

– metal and metal merchandises 6.3 %

– Processed nutrient, drinks and tobacco 3.3 % .

Development of Exports and Imports since North american free trade agreement:

If Mexico & # 8217 ; s Trade Balance was still in shortage in 1997, the state of affairs has greatly improved since1995 as the shortage has decreased of 40 % .