Surging Chinese imports beg questions about Mexico trade

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Workers paint snowmen at a ceramics factory in Guangdong Province, China. As factory workers continue to demand higher wages, jobs like these are starting to move to cheaper countries, such as Cambodia and Vietnam. (Photo by Erica Palmer)
Workers paint snowmen at a ceramics factory in Guangdong Province, China. As factory workers continue to demand higher wages, jobs like these are starting to move to cheaper countries, such as Cambodia and Vietnam. (Photo by Erica Palmer)

Huang Xiaoju eats a breakfast of rice porridge and hot tea then walks to the factory a few minutes from her Chinese village.

She and dozens of fellow workers spend 14 hours a day, six days a week, assembling parts for a product she doesn’t even know the use of.

The Census Bureau says China has become the leading exporter of goods to the United States, with Chinese factory workers like Huang Xiaoju now manufacturing the bulk of American consumer products, from Beats headphones to Nike shoes to iPhones.

The surge half a world away begs the question about why trade with neighboring Mexico lags despite political efforts to strengthen North American trading partnerships.

President George H. W. Bush promoted and ceremonially signed the North American Free Trade Act in 1992 to establish a strong trading partnership in North America. The agreement was officially signed by President Clinton in December 1993 and went into effect January 1994. This was in part a response to the creation of the European Union just a year earlier, according to Jeff Ringer, director of BYU’s Kennedy Center.

“The main goal of NAFTA was to lower trade barriers among the three participating nations,” Ringer said. “And the hope was, although it wasn’t a stated goal, one of the assumed advantages would be increased wealth in Mexico.”

But China surpassed Mexico in 2003 to take first place as the biggest exporter to the United States, according to the Census Bureau. By 2013, 19.4 percent of U.S. imports came from China, worth $440.4 billion, about 1.5 times the dollar value of imports from Mexico.

“(China’s) exports to the United States have grown by 260 percent over the past 10 years,” said Fareed Zakaria in his book “The Post-American World.”

Ringer said during this time period, 600 million Chinese citizens have been pulled out of poverty and into the manufacturing sector, something he called an incredible feat.

Mexico’s economy has also improved in the past 10 years, but some say it is nowhere near where it should be.

“One lofty, unrealized promise of NAFTA was that the treaty would narrow the gap between the per-capita incomes of Mexico, the United States and Canada,” the Council on Foreign Relations said on its website.

The council said while the per-capita income in Mexico has risen an average of 1.2 percent a year over the past 20 years, this growth rate is “far slower” than surrounding countries such as Brazil, Chile and Peru.

“But you have to keep in mind that Mexico had a huge currency devaluation right after NAFTA came in effect,” said a government trade official who advises members of Congress, but asked that he not be named, noting that the statistics are hard to accurately measure.

He said despite the statistics, NAFTA has had a positive effect on Mexico’s economy in multiple ways. Since NAFTA was instigated, Mexico’s democracy has strengthened and its commercial institutions have increased, both things that will continue to help the country’s economy.

The power of 1.3 billion people

Utah businessman and BYU alumnus Jeff Palmer has been manufacturing in China for the past 20 years. He said he has dabbled in the business sectors of other countries such as Vietnam, Korea and Mexico but has stuck with China. He listed China’s low cost,  quality reliability, understanding of American business practices, government and currency stability as assets that make China an efficient business environment.

What’s more, China has 1.3 billion people to put to work.

“China capitalized on its one great resource, which is huge numbers of people,” Ringer said.

He said China’s unprecedented growth has followed the same process any developed country has gone through. Japan and Korea, for example, were originally manufacturing-based and have since become technology and service oriented.

“It’s a pretty normal trend line China is following right now. It’s just that China is so huge that everything it does is outsized and bigger than anybody else’s example,” he said.

Trade as a solution to illegal immigration

Though U.S. trade has fueled China’s growth, Ringer said he believes that simply increasing trade with Mexico will not produce the same effect.

“Mexico has all sorts of structural problems, rule of law issues, core law and order issues with the drug trade that have prevented more growth,” Ringer said. “The Mexican government doesn’t have near the level of control (the Chinese government has), nor does it have the resources.”

According to the Pew Research Center, there are more than 5 million unauthorized Mexican citizens living in the U.S. today, an indicator of the disparity between the Mexican and American economies.

Some believe importing more goods from Mexico is at least a step toward a solution to illegal immigration.

According to the Migration Policy Institute, the rate of Mexican immigration to the U.S. dropped sharply in 2008, the same year the U.S. economy fell and the job market suffered. This showed that jobs are a huge factor fueling immigration.

“The best way to solve immigration issues is to strengthen the economy of Mexico,” said Harvey Scott, the director of international trade and diplomacy in Utah Gov. Gary Herbert’s office. Herbert went to Mexico in April to meet with leading politicians and work on strengthening economic and political ties.

Sen. Orrin Hatch, R-Utah, also sees long-term ties with Mexico. “Mexico is an important trading partner for the United States, and I expect they will continue to be in the future,” Sen. Hatch said. “Both Mexico and the United States are engaged in negotiating the Trans-Pacific Partnership which, if successful, will enable both of our nations to grow our economies through trade.”

The future of U.S. trade

Ringer said the next 10 years will be crucial to see whether China can last as a manufacturing giant.

“No economy has really been successful in maintaining this low-wage advantage over time,” he said.

Palmer said he is already seeing this phenomenon in his business as the working class in China continues to demand higher wages.

“I think China is very rapidly outpricing itself,” he said. “They are going to go the way of Taiwan and Korea and others that have had prosperity that has essentially ruined the reason they had prosperity.”

Also uncertain is where these manufacturing jobs would go next. Scott believes there will be a shift to Mexico with its U.S. proximity, lower freight costs and similar time zones and cultures. “It’s all right there in Mexico,” he said.

Palmer believes the manufacturing business will stay in Asian countries like Cambodia, Vietnam and Bangladesh.

“I think the work ethic in Southeast Asia is stronger,” he said. “I think that people are more self-motivated; I think the governments are more stable.” His operation’s next move is to Cambodia.

The congressional adviser believes manufacturing shifts could bypass Mexico and come back to the U.S. “We manufacture more with a lot fewer resources,” he said. “I don’t think that Mexico would offer that many more advantages than moving to the United States.”

 

 

 

 

 

 

 

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