How the Maquiladora Program Helps Boost the US Economy05.18.18
Mexico’s IMMEX / Maquiladora programs grants foreign companies preferential tax breaks when importing raw materials, and equipment for manufacturing. Foreign companies are already enticed to move their manufacturing operations to Mexico because of the country’s low labor costs. These deferred taxes, along with the lower tariffs and duties thanks to trade agreements like NAFTA, make manufacturing in Mexico even more attractive.
The Mexican government created the IMMEX / Maquiladora program to promote job growth in Mexico, and it’s worked—today, over two million Mexicans are employed in maquiladora factories throughout the country. However, the program has also benefited the US economy in both direct and indirect ways.
Lower Costs for US Consumers
There is no doubt that companies are able to reduce costs when they manufacture in Mexico, primarily due to lower labor costs. This, coupled with preferential tax benefits from the IMMEX program and free trade agreements like NAFTA, means that everything from basic consumer goods to products for the aerospace or medical devices industries can be produced at a far lower cost.
Lower manufacturing costs have also stimulated competition and increased product choices for US consumers. As the Mexican workforce has gained more skills and education, more complex products can be manufactured there as well.
Increase Exports of Raw Materials
US companies produce approximately 40% of the materials in Mexican-made goods. In fact, NAFTA mandates that passenger cars and light trucks manufactured in North America must contain at least 62.5% North American-made materials and parts in order to avoid tariffs. This means that even foreign auto manufacturers like Volkswagen, Honda, Nissan, and others are using American materials in the cars they assemble in their Mexican plants.
Without the reduced tariffs on materials that the US exports to Mexico, smaller businesses wouldn’t be able to compete with larger suppliers.
Increased Trade Creates Jobs
According to the US Chamber of Commerce, NAFTA increased trade between the US, Canada, and Mexico, which created thousands of new jobs in every state. 17 states have seen over 100,000 new jobs to support trade and exports.
Today, trade with Mexico and Canada supports nearly 14 million jobs in the US. And economists generally agree that NAFTA and manufacturing in Mexico have gradually created more high-skill, high-wage jobs in the US. Overall, for every 100 jobs US companies created in Mexican plants, they also created 250 jobs in their US operations.
Access to New Markets
US companies have been able to reach new markets in Mexico (as well as Canada). As foreign direct investment has increased, so have exports of US services (in addition to goods and products), from $27 billion in 1993 to $92 billion in 2014.
In 2016, small- and medium-sized businesses made up 98% of all US exporters, and for those businesses, Mexico was the largest export market by far. While the IMMEX program is for businesses that are manufacturing products for export, operating in Mexico provides an opportunity to expand and reach the country’s emerging markets.
The IMMEX program offers immediate benefits to foreign companies that move their manufacturing operations to Mexico, but those benefits are also felt throughout the US. Interested in learning more about the IMMEX program and how your company can take advantage of its benefits? Contact us today.