NAFTA encourage trade growth between California and Mexico

This year marks the 20th anniversary of the NAFTA trade treaty between the U.S., Canada, and Mexico.

In the last 20 years under NAFTA, trade between Mexico and the U.S. has more than sextupled (6.2), growing at nearly 10% annually and far exceeding the U.S. trade rate growth with the rest of the world (6.7%). Mexican exports to the U.S. have multiplied by seven, surpassing $280 billion in 2013. Currently, Mexico is the U.S.’s third-largest supplier.

Mexico has become a major market for a wide range of U.S. exports: agricultural exports, fabricated metal products, semiconductors, electrical equipment and components, audio and video equipment, computer equipment, and auto parts among others. The trade relationship between Mexico and the United States reached another milestone as products traded between both countries set a new record of $506 billion in 2013, an annual increase of 2.6%. The U.S. Chamber of Commerce now estimates that six million U.S. jobs depend on trade with Mexico.

The NAFTA treaty substantially motivated the growth in cross-border trade and investment with Mexico, benefiting California as the state has undergone greater economic integration with Mexico.

Mexico is California’s largest international trading partner as bilateral trade reached $60.2 billion a year in 2013. California’s exports to Mexico reached $24 billion in 2013, representing 14.2% of the state’s total merchandise exports. Computers and transportation equipment account for 32% of all California sales to Mexico. According to the U.S. Department of Commerce, one-quarter of all manufacturing jobs in California depend on exports to Mexico.

The impacts of increased Mexican trade under NAFTA are forcing certain sectors in California to evolve:

• California farms have access to less manual labor as the Mexican middle class emerges. Less than 2% of the farm workforce is non-immigrants. This will force farmers to invest in more technology and improve their labor-management practices overtime.
• The increase in Mexico’s middle class, estimated to be 0.50% to 1.00% a year, is helping propel California’s exports in technology and consumer products and services.
• California agricultural exports, particularly meat and dairy products, will continue to expand.
• Seasonal fruits and vegetable imports from Mexico will continue to grow in excess of 10% YOY trade volumes as Californians seek access to year-round fresh produce.

The increased economic integration between California and Mexico under the NAFTA treaty is a trend CVF Capital Partners expects to continue in the future. Strategic relationships with Nacional Financiera (México’s economic development bank), ProMéxico (a part of México’s Secretary of the Economy), Fondo de Fondos, and numerous Hispanic-managed businesses provide CVF the needed expertise to navigate the growing Hispanic marketplace in California and Mexico.