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A global carmaking hub, Mexico benefits from trade liberalization
Kind: ICD What's New  Organization: Department of International Cooperation  Publish Date: 2021-11-24 14:46
Abutting the United States in the north and Guatemala in the south, Mexico is a cultural powerhouse among Latin American countries, with a population of 120 million and a territorial area of 1.97 million square kilometers, which is 55 times larger than Taiwan's. A cradle of many American civilizations such as the Maya and Aztec, Mexico is well-known for its Chichen Itza pre-Columbian archaeological site and the Pyramid of the Sun at Teotihuacan, which along with its beautiful beaches in Cancun and its spectacular canyons and deserts, and attracts many tourists from around the world every year.

Mexico is also a powerhouse in the global automotive industry, ranking 6th in vehicle manufacturing and 5th in vehicle parts manufacturing. Approximately one in every 25 cars is produced in Mexico. According to statistics from the National Institute of Statistics and Geography, Mexico produced about 3.04 million vehicles and exported 2.68 million in 2020, with the production value accounting for 4% of the country's GDP.

Currently, Audi, Baic Group, BMW, FCA Group, Ford, General Motors, Honda, KIA, Mazda, Nissan, Toyota and Volkswagen have factories in Mexico. The country's automotive industry has provided over one million jobs, established 300 research centers and served as OEM for over 50 brands. About 90% of all vehicles made in Mexico are exported, with nearly 80% going to the United States.

Nissan holds the highest market share in Mexico, followed in order by General Motors, Volkswagen, Toyota, KIA, Honda, Baic, Mazda, Ford and Hyundai. These brands together account for 82% of the country's automotive market share.

The story of how Mexico became a car making hub can be traced back to 1925 when Ford first established production lines in the country. General Motors and FCA Group later set up factories there. After the 1960s, other major car makers such as Toyota, Nissan and Volkswagen followed suit, transforming Mexico into an international capital of vehicle manufacturing.

There are three main reasons why major automakers have chosen Mexico. Firstly, labor wages are relatively low, and vehicle manufacturing requires a large quantity of labor. Secondly, the government established export processing zones, most of which are near the Mexico-U.S. border, in the 1960s and passed a series of laws aimed at promoting its automotive industry. These measures helped enterprises further lower manufacturing costs. Thirdly, the U.S., Canada and Mexico signed the North American Free Trade Agreement in 1994 (replaced with the United States-Mexico-Canada Agreement in 2020), which provided preferential import/export duties for vehicle manufacturers.

Mexico indeed has a prosperous network of free trade agreements with other countries, attracting many foreign companies to set up bases for production of goods for export.

Now, with the thriving development of electrical vehicles, automakers in Mexico are preparing for this new wave. With accumulated experience in vehicle manufacturing, relatively low wages and a tight network of FTAs, Mexico has bright prospects in terms of EV manufacturing.

Sources: National Institute of Statistics and Geography; U.S. International Trade Administration; Tetakawi; CNBC

Update: 2020-04-23
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