Mexico is about to replace Japan as the second largest exporter of automobiles to the United States by the end of this year. Mexico might even replace Canada as the top exporter by the end of 2015.
The number of automobiles that are exported to the U.S. from Mexico is rising. In the 1990s, that number was below 250,000. By the end of this year, it is expected to reach around 1.7 million, according to IHS Automotive. And by the end of 2015, it is expected to reach around 1.9 million. Japan is expected to export 1.5 million cars this year to the U.S., which means that Mexico will likely trump Japan in the number of cars exported to the U.S. Canada is expected to export 1.87 million cars to the U.S. in 2015, which means that Mexico will even trump Canada in 2015.
Why Is This Happening?
Of course, the first reason that comes to mind is the North American Free Trade Agreement (NAFTA). Under NAFTA, vehicles that are assembled in Mexico need to only pay a limited amount of tariff when exported to the U.S. In addition to NAFTA, Mexico has free trade agreements with many key countries around the globe. The second reason would be Mexico’s geographic location. Mexico is located in North America and is connected to the U.S. by modern highways. The third reason would be Mexico’s low wages. An average Mexican autoworker is paid $16 a day, which is only a fraction of what is paid to autoworkers in the U.S. and Canada.
Who Is Assembling These Cars in Mexico?
So far, it has been mainly the Japanese automakers. Honda opened its first assembly plant in Mexico in 1995, and it opened another one in February 2014. Toyota opened up shop in Mexico in 2002. Nissan opened a plant in November 2013. The most recent is Mazda, which held an opening ceremony of its newest plant on February 27, 2014, with Mexican President Enrique Peña Nieto attending in person. By assembling cars in Mexico, Japanese automakers will be able to avoid the yen-dollar currency risk and to reduce shipping costs to the U.S. They won’t need to ship so many cars across the Pacific anymore.