Promexico at Thunderbird: Why Global Trade and NAFTA Still Matter

By Julio Espinoza, Staff Writer

Being aware of Mexico’s strategic value for both the U.S. and Arizona economies, as well as the current uncertainty surrounding the future of the U.S-Mexico relationship, I decided to partner with my Mexican colleagues at Promexico to find venues of cooperation and to start conversations for fostering a robust ASU-Mexico partnership. Last November, a delegation of Thunderbird senior faculty and upper management met with the Promexico Deputy Trade and Investment Commissioner to Arizona, Eduardo Gonzalez, to discuss strategic interests and find windows of opportunity, such as internship opportunities for Tbirds. The equivalent of the U.S. Commercial Service, Promexico serves as a one-stop shop for trade and investment with Mexico. Mirroring the export-oriented Mexican economy, Promexico has 48 offices in the world and provides seminars, training sessions, business agenda settings and market analysis.

On March 16, Eduardo Gonzalez came to the Thunderbird campus to talk to our soon-to-graduate MA ‘17 students about the value of global trade and U.S.-Mexico Trade. Gonzalez gave a presentation to Professor Jonas Gamso’s TGM 537 State Power, Business Interests, and Multinational Trade Agreements class as part of a potential future collaboration designed to raise awareness about the value of free trade and NAFTA for U.S. national interests (contrary to the “alternative fact” that global trade and NAFTA have been a disaster to our country).

During his presentation Gonzalez shed light on the nature of the Mexican economy and the scope of NAFTA. Mexico, a USD 1.2 trillion economy, has been growing at slow rates in comparison to other emerging markets, but with a growing middle class (60% of a 125 million consumer market), Mexico’s macroeconomic fundamentals have been solid during the past two decades. With a slight variation, depending on the source and methodology, Mexico ranks as the 15th largest world economy with well-balanced terms of trade. It is also the 10th largest world exporter and 9th largest world importer. Mexico’s total trade is USD 776 billion, with USD 374 total exports and USD 387 total imports.

Mexico shifted from an import substitution to an export-oriented economy in the 1980’s and since their entrance to the GATT. It has been one of the most enthusiastic proponents of global trade, supporting both multilateral agreements and institutions, (GATT-WTO, APEC, TPP) as well as bilateral FTA’s such as NAFTA. Today, Mexico is one of the most open economies in the world with a trade to GDP ratio of 70%, reflecting Mexico’s simultaneous dependence on and commitment to a free-market world economy. Until the 1980’s, Mexico depended on energy exports, but now it is a global manufacturing powerhouse thanks to the sound macroeconomic policies working in combination with free trade policies.

Jonas Gamso, PhD
Jonas Gamso, PhD

In a move that some commentators have criticized, Mexico decided to enter NAFTA in the mid 1990’s to formalize and regulate their economic dependency on the U.S. market. Professor Gamso argues that: “A few statistics reveal the extent to which Mexico has bundled its eggs together. For example, of Mexico’s total exports in 2014, 73%, $291 billion, went to the United States. Likewise, the United States is, by far, Mexico’s largest source for foreign direct investment, with stocks increasing steadily since 1994 and reaching $90 billion in 2012. Given these numbers, there can be little doubt about Mexico’s reliance on the continuation of good relations with the United States.”

Although Mexico City has been diversifying their risk by negotiating FTAs with the major world economies, Mexico is heavily dependent on NAFTA. In this regard, Professor Gamso commented: “By diversifying its economic dependency, a country can increase its political leverage in each of the countries upon which it relies.” While promoting multilateral and regional trade liberalization, Mexico has been trying to leverage NAFTA as the cornerstone for its network of FTAs with the 46 countries that account for 70% of the world GDP, two thirds of global imports, and a billion consumers. Mexico is currently updating the Mexico-E.U. FTA, modernizing agreements with Argentina and Brazil, and negotiating a new FTA with Turkey while keeping an eye on future negotiations with Australia and New Zealand. Professor Gamso summarizes this idea:

“Diversifying dependency in this way would allow Mexico to enjoy the benefits of trade while reducing the degree to which Mexico is beholden to the United States on political issues.”

Since the entry into force of NAFTA, U.S-Mexico trade has multiplied by six. Mexico is the U.S. third largest trading partner with USD 1.5 billion in products being bilaterally traded each day. If the U.S. is strategic for Mexican businesses, Mexico is the U.S.’s second-largest export market and second largest supplier of goods. U.S. exports to Mexico reached USD 231 billion last year, which represents more than 16% of its sales worldwide, meaning that Mexico buys more from the U.S. than China, the BRICS, the U.K., Germany, France, and Italy. U.S-Mexico trade is diversified in different sectors, the most important being transportation equipment, computer and electronic products, electrical equipment, machinery, chemicals and metal products; the least being processed foods, agricultural products, and oil and gas.

This means that the U.S.-Mexico trade relationship has grown in size but also in scope, creating new industrial clusters that are highly integrated. For example, in auto and auto-parts Mexico is the 7th largest producer and the 4th largest exporter globally of new light vehicles. 11% of light vehicles sold in the U.S. are produced in Mexico, which is the main auto-parts supplier to the U.S.. Mexico, banking on their competitive advantages, has become the 5th largest auto-parts industry in the world.

Eduardo Gonzalez, Promexico
Eduardo Gonzalez, Promexico

NAFTA represents both losses and gains. As for the benefits, NAFTA has promoted a more integrated and efficient agricultural market and boosted the purchasing power of American families. The U.S. exports grains, oilseeds, and animal feed to Mexico while Mexico contributes 35% of total U.S. bovine animal imports. In the agricultural market, imports from Mexico have helped prevent inflationary pressures for U.S. households. For example 8 out of 10 avocados, 9 out of 10 limes, 1 out of 2 tomatoes, and 1 out of 2 asparaguses sold in the U.S. were harvested in the Mexican countryside. Nearly 5 million U.S. jobs depend on trade in goods and services with Mexico. Mexican-owned companies have invested over USD 52 billion in the U.S. in more than 6,500 businesses that employ more than 120,000 workers in services, food, manufacturing, financial services, and the automobile industries. There is a 40% U.S. value-added in Mexico’s exports to the U.S., a percentage that is greater than the 25% from Canada, the 4% from China, or the 2% from Japan. Eduardo Gonzalez argues that: “When Mexico exports, the United States exports as well. Mexico and the United States do not simply trade goods, we work together to manufacture them.”

Contrary to ongoing general opinion, Mexico represents a large business opportunity, as it is one of the most vibrant economies in the world and a market eager to consume American products and services. ASU and Promexico will hopefully engage in a productive dialogue that will bring on board more and more business leaders that want to build bridges, not walls, in academic cooperation, recruitment, scholarships, applied learning, consulting services, and corporate and executive education. In the meantime, as future business strategists, we must envision NAFTA as the most advanced and sustainable economic engine in 2030, because at that moment our traditional partners will be lagging behind economies such as China, India, Indonesia, Brazil, and Russia.

*Jonas Gamso is an Assistant Professor of International Trade and Global Studies at the Thunderbird School of Global Management at Arizona State University. His research and teaching interests are in global political economy, international development, and quantitative methods.

*Eduardo Gonzalez comes to the Promexico Phoenix office from Baja California, where he served as the Promexico state representative. He had previously worked in Europe for the Export-Import Bank of Mexico. He represents Mexico’s commercial interests in Arizona and Nevada and he is based at the Consulate General of Mexico in Phoenix downtown.

Featured photo courtesy of promexico.mx

Julio Espinoza

Julio Espinoza

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