Date: Jul 17, 2019
Category: Economics Essay
Economic Growth in the US and Mexico

Overtime economic growth has been widespread in most countries. It has increased the dependence of the countries, for they can rely on themselves to sustain their population. The economy is said to have grown if the per capita income of the state increases. The per capita income is determined by the average earning of an individual in a country or a region. The given essay will discuss the economic growth of Mexico and the US.

The mentioned two states have worked together in overtime to develop economically. Following this integration, they have not only built good economic, but also strong cultural ties. Among the rest of the countries in the world, Mexico is the second country alongside Canada, which imports products from the US. Apart from Mexico being a market for US goods, it is also in a manufacturing partnership with it. Their relation became stronger and more profitable after they signed an agreement in 1994. The two nations share an extensive scope of interests, which has made them even closer. The countries have created a wide range of links, both social and economic. The Gulf of Mexico has encouraged trade between the countries due to the easy transportation of goods.

The countries’ economic growth could easily be determined by their per capita income over time. The per capita income of Mexico was lower than that of the US in 2011. However, this has supplementarily increased, especially for Mexico. The main determinant of the per capita income of Mexico is the United States. It is because the US is the main market for Mexico exports; therefore, if the exports are high, it also positively affects the per capita income, increasing it accordingly. Following the increase in trade between the states, the per capita income for each has grown for the past ten years, considering the period between 2001 and 2011.

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In their trade deals, the US is the number one trader for Mexico, while the latter is the second-largest market for the United States. As both countries grew in trade after the agreement in 1994, their imports were mostly dependent on each other. That is why the US mostly imported goods from Mexico, and so did Mexico - imported most of their goods from the US. However, trade between the two countries deteriorated in 2009, caused by the global economic downturn. After this challenge, trade highly increased in the following years.

There were many factors that boosted the increase in trade in the following years. One of the key factors was the energy trade between the two countries. Moreover, crude oil was the main element that increased the trade, since the US imported their crude oil from Mexico. This led to a high increase in imports of refined oil from Mexico by the US.

The reliance of the US as an exporter for Mexico has diminished year by year. It was because Mexico lost the US market as the years passed by. This was also caused by China when it replaced Mexico as the second supplier of the US. Moreover, the United States has also lost its market as Mexico’s top suppliers for their imports to China. In a period of five years, the percentage of Mexico’s imports from the US decreased by 20%.

Though the agreement signed in 1994 could be held accountable for the good progress of the economic growth of the two countries, it was also affected by various factors. Among them was the currency crisis, which Mexico faced in 1995. It caused limited purchasing capability of the Mexicans, and thus, made their resources cheap for buyers. It highly deteriorated trade in Mexico in the following years. It also increased Mexico’s trade deficit by the US. During this time, the US highly grew with the business cycles, which existed in Mexico. These were the two major factors that led to the deterioration of trade.

As it was mentioned above, the trade between the countries deteriorated in 2009, when the amounts of Mexican crude oil to the US decreased. The cutback was mostly caused by the global downturn. After this crisis, Canada replaced Mexico as the major crude oil supplier. Therefore, Mexico became the third supplier, since Saudi Arabia replaced it from the second supplier’s position.

One of the most integral parts of trade between the two countries was the investment, which they referred to as the foreign direct. It was an operation involving one country investing in another, in terms of plants, real estates, as well as retail facilities. The foreigner was to own a percentage of this investment, as per agreement terms between them.

However, the US invested more in Mexico; it was caused by numerous challenges, which Mexico faced. Following the consistent increase of the US investment in Mexico since 1995, Mexico liberalized its restrictions to foreign investors. The provisions of the signed agreement, which protected investors from the country, were the main cause of that move. These provisions were something that gave investors the confidence to invest more. Nonetheless, the provisions were for the benefit of Mexico, as the US investments brought about a series of developments. It was because the US got the confidence to invest more and more due to the agreement of NAFTA in 1995 that kept on being revised about FDI.

The FDI in Mexico is mainly in the form of industries, which has acted as a center of attraction to other investors and brought a lot of profit to the country. The US has widely used the maquiladora industry, which export was oriented for its best benefit. That is why the US uses this industry to get cheap labor force from Mexico, as compared to the production cost.

After NAFTA merged with the export industries, the restrictions of Mexico in the exports industry changed. Yet, in 2001, the US replaced the provisions that were in the NAFTA because it mainly applied to specific businesses, which were the export industries of Mexico. Therefore, this led to the fall of the export industries in Mexico, but the new strategies, which the US came up with, applied in all business operations that concerned Mexico.

Mexico had a temporary imports program (maquiladora), which was meant to compete against the export industry. This meant that all the industries in Mexico became the same, for they were governed by the same rules. Therefore, it was hard to tell the difference between the formerly secluded maquiladora industries to any other type of industry in Mexico.

The maquiladora industries had highly increased after the agreement in 1995. Though in 2003, the number of these industries decreased again, by a roughly big margin. This led Mexico to publishing statistics about its industries in 2007. The announced data showed that it concentrated the industries at their border with the United States, which consolidated ties between them. However, the number of industries in central Mexico also remained successful and managed a huge number of employees.

For Mexico, remittances from America were among its highest incomes from the trade. It included the Mexican workers in the US, who would send money to their families for their sustainability. Mexico was among the three countries, which received the highest number of remittances from America. It was the third-best, while China was first and India the second. These remittances were among the sure flows of income to Mexico because the Mexican workers in the US had to work hard to maintain their families in Mexico, by sending them money. They increased by a high percentage of 182, in periods of seven years, from 2001 to 2008. However, these remittances raised the economy of Mexico irregularly; at the border of Mexico and the US, the remittances were responsible for 80% of the expenses of the Mexicans, while in other parts, it catered only for 40% of the expenses.

Since 2005, the two countries were joined by Canada with the effort of forming a trilateral. It was mainly meant to increase the security of trade among them. It led these countries to forming summits, and the first one was held in Washington D.C., hosted by President Obama. In this summit, the leaders from the three nations were to discuss how well to maintain security among them and boost their economic exchange.

The meeting of the three leaders led to the renewal of cooperation, which had its key interests. They mostly emphasized on their protection in order to have the confidence to business together. In addition, they have also shown interest in the need for a country to have intellectual rights on the property. The leaders also emphasized on collective management of energy to ensure energy security among them. This included the complete exploitation of resources in the specific countries and common management of the climatic changes. They had to commonly come up with a strategy, which could cater to this problem globally.

On issues of security, the trilateral came up with a way to curb organized crime, which existed in America. It was by the formation of a partnership integration system, which coordinated regional security. This led to the holding off more summits for the three leaders in order to strategize more on their development. During the summit held in 2005, the leaders had the aim to enhance their economic prosperity via regulatory cooperation. However, the partnership integration system formed on security was different from the NAFTA, though it was not signed and lacked any type of legal obligation. It has led to the formation of other partnerships, for instance, on border management between the US and Mexico, and between the US and Canada, which was meant to help align the regulatory cooperation, which existed between them.

The regulatory cooperation was highly enhanced by recommendations, which were made by special groups that were working together. These recommendations included developing regulations, which were more compatible in order to increase the competitiveness of these countries. The recommendations also involved the establishment of security at the borders and construction of suitable infrastructure in order to enhance the transportation between them. The recommendation also involved the reduction of trade fines between the countries, so that they could trade easily. Furthermore, among the recommendations made, there was also the development of a framework to harmonize the efficiency standards. The given move meant to strengthen energy security among them. This included the sharing of technical information, which was meant to ensure the exchange of technology among the countries.

Again, it involved the increasing access to basic needs to each other and the members of the states. Moreover, it recommended an improvement in how these member countries responded to the rise of any emergency. Also, it involved the updating of the agreements between the countries, so that it would be easier for them to assist each other during emergencies.

However, in June 2012, the US president invited more countries to join the free trade agreement. This was meant to involve more countries in the trade regulatory, which existed between the US and Mexico in NAFTA, and between them both and Canada. It was meant to be a negotiation in order to make new term and to improve some of the existing arguments.

NAFTA has managed to achieve most of its goals, but its various adjustments were the main elements, which resulted in this. However, most of its effects in the US were due to changes in the NAFTA trade patterns with Mexico. This was not the main reason for the growth of the US economy, for there was the existence of the US and Canada agreement before the existence of NAFTA. Again, not only NAFTA has been contributing influence to the Mexican economy for years before its establishment. Mexico had an import policy, which led to the growth of various industries, for instance, the automotive industry.

Generally, the NAFTA has had a small impact on the growth of the US economy, and its non-existence would not really affect the US economy. Yet, NAFTA has had a great impact on Mexico and contributed to its main growth. Therefore, NAFTA has highly raised the economy of Mexico near to that of the US and Canada due to their integration.

Despite multiple agreements, Mexico and the US had a trade dispute. It was about the labeling of the tuna products from Mexico by the US as the ‘dolphin safe’. Mexico argued that these products ought not to be named that way just because they were encircled by dolphin nets.

From the illustrations above, it is evident that the relation between the two countries has strongly influenced their current economies. However, Mexico has benefitted from this relation more than the US. Therefore, the relation between the countries should be encouraged for better and faster growth of the economy.