History of Manufacturing in Mexico

The manufacturing industry in Mexico has been the driver for economic growth in Mexico. It has compelled the development of key talent that has become the cornerstone for North American competitiveness.

The North American economies are intertwined as well as dependent. In fact, $0.40 cents of content imported to the United States from Mexico is actually produced in the United States, from production materials to cloud services. The path forward has to be based on a clear understanding that the U.S. are strategic partners, not competitors.

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The lasting effects of the maquiladora manufacturing industry on Mexico’s economy include: higher levels of productivity, employment growth, new technology transfer and implementation, creation of a new labor culture, establishment of new developmental hubs, among others. Light vehicle production tripled between 1994 and 2016, corresponding to 3.5 million units. Today’s maquiladoras in Mexico produce almost half of the country’s exports.

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So how has Mexico developed to become a key asset in North American manufacturing competitiveness?

The Bracero program refers to agreements between the U.S. and Mexican governments that allowed Mexican workers to fill seasonal jobs on U.S. farms during and after wartimes. As the popularity of the program grew, more and more hopeful Mexicans moved to the U.S.-Mexico border in hopes of being selected. When industrialization and stagnant wage growth in agriculture caused the dissolution of the program, these abundant border workers prompted the creation of the maquiladora program in 1965. The U.S. investment in assembly factories could provide jobs for ex-Braceros in Mexico.

During the 1970’s, industrial policy diversified its objectives to include export promotion and the strengthening of international competitiveness. The government created the Mexican Institute of Exterior Commerce and lifted some important restrictions on foreign investment and expanded the field of operation of maquiladoras into the country’s interior. Policies were established to provide rebates, short-term export credits, and financing.

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High population growth through the 1970’s combined with the dissolution of the Bracero Program found Mexico with an abundance of semi-trained labor. A great migration to the cities was occurring. Mexico recognized the need to prepare a technical workforce capable of fulfilling the growing maquiladora industry.

Accompanying an overall growth in the maquiladora industry in Mexico, the focus was set on not only assembly investment, but overall manufacturing processes. During the decade, Mexico shifted its auto industry policy toward export promotion. Vehicle manufacturers responded by opening modern and competitive plants in Mexico.

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After an economic stagnation and debt crisis, Mexico takes the first step toward reducing its trade barriers by joining the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organization.

In the early 1990’s, Mexico lowered a number of agricultural trade barriers and in 1994 joined Canada and the United States on implementing the North American Free Trade Agreement (NAFTA). The deal created the second-largest trading bloc and opened the door to expanded diplomatic cooperation between the United States and Mexico. Most economics conclude that the deal boosted overall economic growth, including more than tripling North American trade and helping to transform Mexico’s economy.

During the 2000’s Mexico underwent an accelerated development, thanks mainly to the confidence of foreign investors and the development of the Just-in-Time model of manufacturing that relied on more agile, local supply chains. Administrations in Mexico and the United States vowed to expand trade relations, immigration reform and economic liberalization.

At the end of the decade, Mexican manufacturing underwent a crisis before rallying again in 2010.

Well into the first decade of 2000, Mexico and US announce initiatives for continued bilateral cooperation under Presidents Obama & Pe?a Nieto. In 2019, Mexico surpasses Canada and China to become the United States’ top trading partner, with bilateral trade totaling $615 billion. At the same time, Mexico overhauls their Labor System to improve their labor justice system and freedom of association for workers.

The USMCA replaced NAFTA in 2020, outlining changes to regional content for goods manufactured in North America, reforms to dispute resolution mechanisms, and stronger labor protections. The global pandemic brought about a new set of challenges including supply chain agility and nearshoring initiatives to North America. Both Mexico and the United States renewed their infrastructure priorities in part to increase North American manufacturing competitiveness.

Over the next decade, manufacturing as we know it will experience profound changes. The output of the next industrial revolution is influenced by shifting dynamics in consumerism and workforce demands. The post-pandemic industry is in “design mode”, solving challenges in workforce shortage, supply chain instability, smart factory initiatives, cybersecurity and ESG investment goals.

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Mexico will continue to be a strategic alliance for US manufacturing, with complementary capacities and strong intra-regional trade. Nearshoring efforts show no signs of stopping, and trilateral cooperation and diplomacy are the way forward for North America.