Executive Briefings

Here's How U.S. Trade Differs With Mexico and China

Depending on who you ask, it's either the best of times or the worst of times for global trade. Protectionists villainize trade as damaging to U.S. workers, while on the other side of the coin pure laissez faire free traders consider trade as a pure positive for the United States.

Mexico and China frequently are labeled as scapegoats for U.S. manufacturing decline. Partially, this is because Mexico and China are currently our top two trading partners, comprising 15 and 17 percent of U.S. global trade volume, respectively. In addition, both have lower labor costs than the United States, so the perception is that they have an unfair advantage that leads to a “giant sucking sounds” of offshored jobs.

However, losing a job to China is much more damaging for the United States than losing a job to Mexico for three main reasons: The United States and Mexico have conjoined and complimentary supply chains in many industries; Mexico generally plays by the rules while China willfully ignores international trade agreements; and trade with Mexico does not aggressively grow the U.S. trade deficit. I’ll break each of these down.

1. Mexico's manufacturing sector is integrated with U.S. supply chains and success is shared.

Supply chains frequently stretch across the U.S.-Mexican border. In this way, the North American Free Trade Agreement (NAFTA) is working as it should. The United States and Mexico form a high wage/low wage partnership, bringing complementary labor forces, investments, innovation capacity, and industry strengths together to be able to compete globally. With strategic relationships with Mexico, the United States can keep the higher value-added components of industries befitting our comparative advantage as a high-wage, innovation-intensive country. For example, 40 percent of the inputs to finished manufacturing goods in Mexico from the United States.

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Mexico and China frequently are labeled as scapegoats for U.S. manufacturing decline. Partially, this is because Mexico and China are currently our top two trading partners, comprising 15 and 17 percent of U.S. global trade volume, respectively. In addition, both have lower labor costs than the United States, so the perception is that they have an unfair advantage that leads to a “giant sucking sounds” of offshored jobs.

However, losing a job to China is much more damaging for the United States than losing a job to Mexico for three main reasons: The United States and Mexico have conjoined and complimentary supply chains in many industries; Mexico generally plays by the rules while China willfully ignores international trade agreements; and trade with Mexico does not aggressively grow the U.S. trade deficit. I’ll break each of these down.

1. Mexico's manufacturing sector is integrated with U.S. supply chains and success is shared.

Supply chains frequently stretch across the U.S.-Mexican border. In this way, the North American Free Trade Agreement (NAFTA) is working as it should. The United States and Mexico form a high wage/low wage partnership, bringing complementary labor forces, investments, innovation capacity, and industry strengths together to be able to compete globally. With strategic relationships with Mexico, the United States can keep the higher value-added components of industries befitting our comparative advantage as a high-wage, innovation-intensive country. For example, 40 percent of the inputs to finished manufacturing goods in Mexico from the United States.

Read Full Article