The ‘problem’ with Mexico’s 44% growth in exports: A perspective from our CEO

A recent headline surprised everyone when Mexico's export revenue in July hit US $81 billion, up 44%. This represents nearly $1 trillion in annualized export revenue. Last year, exports reached a record $665 billion, and through July this year, they grew by 27.7%. Mexico has now become the largest exporter to the United States, surpassing Canada and China. While a 44% growth in exports may seem impressive, a closer look at the numbers reveals a more nuanced picture.

Most of the growth has come from electrical and electronic equipment and appliances, which increased by 134% in July. For the first time, Mexico's exports in this category surpassed auto and auto parts, a category that had historically led export revenue figures for Mexico. However, automotive exports have been flat year-to-date, and oil exports have decreased. The vast majority of export growth is concentrated in this single segment.

Import growth is also booming, with year-to-date imports up by 25.6%. In July, imports even exceeded exports, resulting in a trade deficit. Moreover, Mexico has been importing a significant amount of products from Taiwan, growing by over 200% so far this year and reaching nearly US $40 billion in the first half of the year.

Despite these impressive export numbers, Mexico's economy is not growing as much as one might expect. Estimates suggest that Mexican GDP growth will be around 1.2%-1.5%, which is only half of the U.S. growth rate this year. This discrepancy raises questions about the true impact of the export growth on domestic production and consumption.

Upon analyzing the data, it becomes clear that the rapidly growing electronics category is extremely low in terms of domestic value added. Specifically, less than 3% of the value of exported products in this category is attributed to Mexican labor and Mexican-origin content. This is barely a tenth of the value added in the vehicle segment, where engineering, design, parts manufacturing, and assembly are more prevalent.

The real opportunity for Mexico lies in capturing more of the added value in the electronics category, which could have a significant impact on employment in the country.