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American Shale Gas Is Going To Power Mexican Manufacturing Boom

Walter Russell Mead, Via Meadia

Shale gas isn’t just good for America, it’s good forNorth America. A new report from the Boston Consulting Group suggests that cheap American shale gas is going to power a Mexican manufacturing boom (h/t Matt Yglesias):

Within five years, higher manufacturing exports due to a widening cost advantage over China and other major economies could add $20 billion to $60 billion in output to Mexico’s economy annually. And thanks to the North America Free Trade Agreement (NAFTA), U.S. manufacturers of components for everything from automobiles to computers assembled in Mexico also stand to benefit, according to new research by The Boston Consulting Group (BCG).

The key drivers of Mexico’s improving competitive edge are relatively low labor costs and shorter supply chains due to the country’s proximity to markets in the U.S. Another important advantage is that Mexico has 44 free-trade agreements—more than any other nation—allowing many of its exports to enter major economies with few or no duties. […]

By 2015, for example, average manufacturing-labor costs in Mexico are projected to be 19 percent lower than in China, where wages are rising rapidly, and around 30 percent lower when adjusted for output per worker. In 2000, Mexican labor was 58 percent more expensive than in China. Mexico will also have lower energy costs than many other economies. Average electricity costs are around 4 percent lower in Mexico than in China, for example, while the average price of industrial natural gas is 63 percent lower.

In other words, we’re going to be seeing a lot more “Made in Mexico” tags and a lot fewer “Made in China” ones on products sold in America. If President Enrique Peña Nieto pushes through the energy reforms he has promised, Mexico’s manufacturing advantage over China will widen even more as the country taps in to its own substantial shale energy reserves.

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