Claims about Mexico

From John Paul Rathbone:

For the first time in a decade there are good reasons to be less bullish about China – and thus Brazil. There are also good reasons to be more bullish about the US – and thus Mexico. China has lost competitiveness because of rising wage and transport costs. North American corporate supply chains are already shortening. If the US economy recovers, Mexican manufacturers should do well.

Mexico has also become a global car producer. The industry generated $23bn of exports last year – more than oil or tourism. Nor are these cheapo maquiladora operations: Volkswagen and Nissan use Mexico’s web of trade agreements to export their cars to the whole world. As for Mexico’s “drugs war”, the once dizzying increase of violence has slowed and in some areas fallen. Why is not clear, but a 74 per cent increase in federal security spending will eventually make a difference, anywhere.

Read the whole thing, well argued throughout.

Comments

JP Morgan's Ruchir Sharma's new book "Breakout Nations" has a chapter of Mexico. He makes the point I've been making for years: Mexico's most flagrant problem is that its monopolist oligarchs, such as World Richest Man Carlos Slim, raise the cost of living so high for the average Mexican.

Tyler, you should write a column for the New York Times asking for a formal investigation of how Slim's 2008 bailout of the New York Times has affected the NYT's coverage of phenomenon from which Slim profits, such as illegal immigration.

Tyler calling out the NYT? Ha, ha, good one!

Did Tyler include the bit about not biting hands that feed you in his culinary advice book?

Not sure, but as far as advice on being a complete tool, he leads by example every day on this blog.

" good reasons to be less bullish about China – and thus Brazil."

I didn't get the "thus" part. What's the close tie between the fates of China and Brazil. I see Brazil as the resource-exporter but assuming China fades won't Brazil sell to whoever else supplants China? Say, Mexico.

The other part that confuses me is the complaints of "rising shipping costs". e.g. This graph shows that international container shipping rates were cheaper for almost every container-size in 2010 than in 2000. Have the rates spiked since then? In any case it seems hard that container shipping is any more expensive than it was in 2005 which would need a 100% spike from 2010 to now.

The other evidence is that almost all container-shipping firms have been making a deep loss in 2011. Agreed part of this is the new-ship-glut but yet this statement from Neptune Orient Lines is hard to ignore:

“With continued low freight rates in container shipping and slowing trade demand, Nol Group expects to report a loss for the full year in 2011,”

Where's the evidence for high international shipping rates?

The China slows down, Brazil gets killed argument has the assumption that China's raw resource intake is so large that there will be no one else to replace it and as Brazil continues to be de-industrialized by its trade with China the less fall back there is for it and the more likely it will look like Argentina.

After looking at Brazil's exports, I agree about the first point. Asia only accounts for 18% of Brazil's total exports, so it isn't solely dependent on China even now. Maybe the author thinks China's slowdown will cause a worldwide drop in commodity prices?

As for the shipping rates, I'm not 100% sure, but I don't believe the chart you linked to includes fuel costs (see this: http://en.wikipedia.org/wiki/Chartering_(shipping) ). Also, there has been a lot of volatility since 2010. It's not clear to me what the real cost of shipping is right now. In any case, shipping costs should be closely related to fuel costs in the long-term. That does suggest a rising trend. And companies make supply decisions based on the long-term. They can't outsource a product to China now, then change to domestic production a few months later if shipping prices rise.

Thanks for the pointer, Tyler.

Tyler, is your back a little wet?

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