Mexico Looks To U.S. To Fuel Economic Recovery

First of two parts

Mexican workers shout slogans during a strike at Volkswagen's plant in Puebla, Mexico, in August. i i

Mexican workers shout slogans during a strike at Volkswagen's plant in Puebla, Mexico, in August. About 9,000 workers went on strike after pay negotiations collapsed, and many employees have since been placed on half-time shifts. Jose Castanares/AFP/Getty Images hide caption

itoggle caption Jose Castanares/AFP/Getty Images
Mexican workers shout slogans during a strike at Volkswagen's plant in Puebla, Mexico, in August.

Mexican workers shout slogans during a strike at Volkswagen's plant in Puebla, Mexico, in August. About 9,000 workers went on strike after pay negotiations collapsed, and many employees have since been placed on half-time shifts.

Jose Castanares/AFP/Getty Images

It wasn't always this way. But after 15 years of NAFTA, the North American Free Trade Agreement, at least 80 percent of Mexico's trade is with the U.S., and Mexico is the second largest destination for U.S. goods.

That was great in the boom years. But the U.S. recession hit Mexico hard.

"That, in turn, hurts the United States. When Mexicans are not able to purchase U.S. goods, it also hurts U.S. exporting industries — everything from farm machinery in Indiana, wheat in Nebraska, all sorts of goods out of Texas," says Andrew Selee, director of the Mexico Institute at the Woodrow Wilson Center in Washington, D.C.

"We have a sort of boomerang effect back and forth. The U.S. economy goes down and hurts the Mexican economy. But in return, as the Mexican economy struggles to get back on its feet, it also slows down our recovery," Selee says.

Puebla, Mexico, an inland city about two hours south of the capital, is struggling to get back on its feet. The city has a historic downtown district — cobblestone streets and Spanish churches. But the economy is global, based on manufacturing of goods made in Mexico and sold mainly in the United States.

The credit crisis that followed the collapse of the investment firm Lehman Brothers last year had a dramatic impact in Puebla. U.S. manufacturers slashed orders from Mexican factories by 30 percent.

'How To Survive?'

"The crisis is affecting our business, of course. We are a victim of what is happening. You have to think — how to survive?" says Julian Abed, Puebla's representative for the American computer company Hewlett-Packard.

Abed says he no longer feels comfortable with the U.S.-Mexican trade relationship.

"Our bet was to have trade with the United States, to share our destiny with everything. But they didn't," he says. "We are a new class of Mexicans who are fighting to have a position in the world."

The massive downturn in Mexico, with the slowest recovery in Latin America, has opened a debate about close ties to the U.S. market.

Some factories assembling jeans and T-shirts have closed. Auto parts factories are struggling. The Volkswagen plant in Puebla has put much of the workforce on half-time shifts.

Lost Factory Orders, Lost Jobs

Unemployment has been twice as high as in corresponding U.S. industries, economist Gordon Hanson says.

"The piece of the production process that Mexico has grabbed over the last 20 years is primarily assembly of parts and components in the final output, which is highly volatile," says Hanson, director of the Center on Pacific Economies at the University of California, San Diego.

His new research shows that Mexico cushioned American manufacturing in the downturn because orders from Mexican factories were canceled first.

"Even though Mexico didn't plan to kind of take a high-risk strategy in terms of how it inserts itself in the global economy, that's how it's ended up," he says.

The Rev. Jorge Galicia Amesqua sees the social costs of that risk.

A year ago, he quit his job as a psychology professor to work at a Catholic parish. Our Lady of the Forsaken is aptly named, it turns out. With no government benefits for the unemployed, many turn to his church for help. Amesqua says the downturn has touched every business.

"I have friends — they produced blue jeans. But they don't have clients in the United States, so they [are] broke," he says, adding that many of the workers lost their jobs.

He has opened a center in one of Puebla's poorest neighborhoods, offering a food bank and a free clinic.

Puebla is proud of its local culture. But it is easy to see the interdependence with the giant economy to the north. There is a Starbucks there, and a Sears store. And Wal-Mart has more than 60 outlets in Puebla.

Hopes For A Recovery

Despite the downturn, some entrepreneurs like Francisco Rivera insist that economic integration has been good for his country.

"Well, we always say that it's like we sleep with an elephant. The American economy is the strongest in the world. I think that you have the structure to get out of the water sooner than the other countries, no?" says Rivera, who runs a family-owned textile manufacturing business.

On a recent day, his workers were packaging hats, scarves, baby clothes and a lot of socks — 720,000 pairs a month.

The company is licensed to brand products with some of the most recognizable American names — New Balance, Barbie and M&Ms. Sales have been steady because his high-quality products are sold in the Mexican market, not to the U.S.

Rivera believes Mexico has to update the U.S. partnership and offer more than cheap labor and goods. He turns out quality by investing in his employees, he says.

Every worker takes English classes offered after each shift, so they understand the complex programs on the high-tech knitting machines.

Rivera wants to expand to the U.S. market but says the Mexican government has failed to adopt policies to offer more credit and business loans to help him compete.

Mexico's recovery depends on more business with the U.S., he says. The recession will end, and trade with the United States will pick up, he adds.

"Yeah, because this problem is going to be normal in one and a half years. No more. It's the best market in the world, I think," Rivera says.

Deborah Amos' report comes courtesy of America Abroad, a monthly public radio international affairs program.

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