Mexico has the second largest GDP amongst the Latin American and Caribbean countries after Brazil. It’s GDP is currently ranked at 15th worldwide in nominal terms and 11th by purchasing power parity. Mexico’s nominal GDP is currently estimated at 2.5 trillion USD and its GDP in terms of purchasing power parity is estimated at 1.25 trillion USD as of 2018.
The Mexican economy has a strong relation to its North American Free Trade Agreement (NAFTA) partners, especially the US. Mexico became the first Latin American country to become a member of Organization for Economic Co-operation and Development (OECD) and is classified by the World Bank as an upper-middle income country. The Mexican economy is heavily export oriented as more than 90% of Mexican trade is under the NAFTA with over 40 countries, with US being its leading partner. NAFTA has increased US exports to Mexico from $41.6 billion in 1993 to $216.3 billion in 1994 and US imports from Mexico from $39.9 billion in 1993 to $277.7 billion in 2012, an increase of 596%.
Since the establishment of NAFTA in 1994, Mexico’s welfare has increased by 1.31% by 2015 and saw a rise of Mexican middle class by lowering the average cost of basic necessities in Mexico by 50%. This has led to an increased cash-on-hand for many Mexican families, which allowed Mexico to graduate more engineers than Germany each year.
NAFTA also helped Mexican manufacturers adapt to US technological innovations quickly through maquiladora, a manufacturing operation where Mexican factories import US materials and equipment at a low, duty-free and tariff-free costs, but brought disastrous consequences for many of the rural, small-scale farmers in the country who employed outdated or inefficient farming methods that worked within a pre-NAFTA, protectionist economic model, and raised numerous ethical problems regarding sweatshops and below-average working conditions. With the entry of China into the WTO in 2001, thousands of jobs in the maquiladora were shipped overseas, leaving thousands of Mexican workers unemployed, leading to a rise in illegal immigration into the US.
With NAFTA being replaced with the United States-Mexico-Canada Agreement, or USMCA, Mexico is to expect new consequences from the new deal. The USMCA is meant to improve the Mexico labor environments, as the pact offers protections for workers in all three countries. Mexico should be prepared to adapt to the changes being made and should take action to decrease its unemployment rates.
HE SHIN
