Slumping Economies Set To Slow OC Export Growth
MARKET to watch: MEXICO
SPECIAL REPORT
by Chris Cziborr
Mexico has seen better times.
By one account, Japan in 2000 managed to regain its title from Mexico as Orange County’s top export market. Japan absorbed $2.3 billion in 2000 OC exports, vs. $2.2 billion for Mexico, according to California State University, Fullerton. Mexico leapfrogged Japan in 1999.
While Japan took a turn for the worse in 2001, so did Mexico. The U.S. recession and technology meltdown has had a pronounced impact on Mexico: the country’s gross domestic product contracted by 1.6% for the 12 months ended Sept. 30.
“This recessionary effect has been intensified since the Sept. 11 attacks on the U.S.,” said James Dietz, professor of economics and Latin American studies at Cal State Fullerton. “The lower level of Mexican imports from the U.S. is further depressing the U.S. and California economies as spending decreases in a vicious cycle.”
What kind of year Mexico has in 2002 depends largely on how things shape up here, Dietz said.
“The adverse effects of the slowdown will only be reversed when the U.S. and California begin their recovery, boosting Mexican exports and total income in the Mexican economy,” he said.
Prior projections for Mexico’s recovery now are “far too optimistic,” according to Dietz. A rebound in 2002 is unlikely, he said, “as falling demand in the U.S. for Mexican goods and reduced travel by Americans to Mexico cuts further into Mexico’s sales abroad.”
Mexico’s border plant sector,a big destination for many OC exports,was hit hard this year with thousands of layoffs stemming from Asian competition and unintended consequences of 1994’s North American Free Trade Agreement.
Dietz said the border plant sector would suffer a 3% decrease in output for the year after 12 years of uninterrupted expansion. He said he expects a continuing fall in output next year.
Tariff changes that were phased in a year ago have had decidedly mixed results for OC companies and others in Baja since early this year. The rules require goods produced at the plants to be 51% or more made with components from Mexico, the U.S. or Canada.
Rather than meet the new requirements, companies such as Sony Corp., Sanyo Electric Co., NEC Corp. and others have found it cheaper to move some production elsewhere,even with added shipping and tariff costs.
“A lot of companies since January have moved their operations to Asia, especially China,” said Oscar Martinez, human resource manager at the Tijuana assembly plant of El Segundo-based International Rectifier Corp.
Dietz said plants closest to California weren’t hit as hard by the U.S. downturn before Sept. 11.
“The strength of the California economy perhaps exceeded that of the U.S. economy as a whole,” he said.
,Chris Cziborr
