Common Manufacturing in Mexico Myths

NovaLink is committed to the growth and satisfaction of its clients who are currently or will be committed to manufacturing in Mexico in the future. Here are some common manufacturing in Mexico myths.

Myth: Trade with Mexico mostly benefits southern and border states

False. While it’s true that Mexico does the most commerce with populous partners such as California and Texas, every single U.S. state participates. Statistics from the Wilson Center Mexico Institute indicate that South Dakota, New Hampshire, and Nebraska send more than 20 percent of their exports to Mexico. As of 2015, Mexico was the second-largest export market for northern states such as Pennsylvania, Michigan, Wisconsin, and Ohio. Detroit, in large part due to synergies in the auto manufacturing market, exports $10.9 billion in goods a year to Mexico, more than any other metropolitan area.

Myth: Manufacturing in Mexico hurts U.S. workers

False. This is one of the most common manufacturing in Mexico myths. While conceding that many U.S. high-wage manufacturing jobs were relocated to Mexico, China and other foreign locations as a result of NAFTA, Morris Cohen, Wharton professor of operations and information management, argues that NAFTA has, on balance, been a good thing for the U.S. economy and U.S. corporations. “The sucking sound that Ross Perot predicted did not occur; many jobs were created in Canada and Mexico, and [the resulting] economic activity created a somewhat seamless supply chain — a North American supply chain that allowed North American auto companies to be more profitable and more competitive.”

Myth: Mexican-manufactured goods are low quality

False. The Maquiladora, a young and talented  worker population with a mean age of 26 years, has demonstrated the capacity to construct sophisticated products.  As stated by the Organization for Economic Cooperation and Development (OECD), Mexico’s 3.5 rate in the “technological sophistication level of exported goods” is above the average of OECD exports, higher than Brazil and similar to Asian countries. Every year, 115,000 Mexican engineers are graduated in science and technology careers.

Myth: Mexico is falling further behind China as a manufacturing base for U.S. markets

False. Mexico’s relative competitiveness with China, as a source for U.S. markets, has also received a boost from challenges in China. In recent years, China’s manufacturing wages have been rising absolutely and relative to increases in its productivity. Labor unrest has burst out across China, a phenomenon formerly unknown in the country. This has prompted shifts in manufacturing out of China to low-wage Southeast Asian nations and, for more sophisticated products, to Mexico. While China and other Asian exporting countries are benefiting from the collapse in ocean freight rates, Mexico continues to maintain strong logistical advantages: Geographic proximity, shorter transit time, time zone alignment, accessibility, free trade, cross-border logistics investments (particularly in road and rail), and strong political and social ties with the U.S.

Myth: Manufacturing in Mexico hurts and exploits workers in that country by eroding labor standards and lowering wages

False. The NAFTA partners negotiated and implemented a parallel agreement on labor cooperation, the North American Agreement on Labor Cooperation (NAALC). The NAALC adds a social dimension to NAFTA. Through the NAALC, the regional trading partners seek to improve working conditions and living standards, and to protect, enhance, and enforce basic workers’ rights. Over the years, the NAALC has helped to improve working conditions and living standards in Canada, the U.S., and Mexico. It has also raised the public profile of major labor rights issues, including pregnancy-based discrimination, secret ballot voting, protection contracts, and protection of migrant workers. The NAALC promotes the effective enforcement of domestic labor laws in all three countries and highlights cooperation on labor matters in three key areas: industrial relations, occupational health and safety, and employment standards. In addition, NAFTA has promoted higher wages. In Mexico, for example, export firms employ one in five workers; these workers are paid 40% more on average than those in non-export jobs. Firms with foreign direct investment employ nearly 20% of the labor force and pay 26% more than the domestic average manufacturing wage.

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