Mexico Looks To U.S. To Fuel Economic Recovery

SCOTT SIMON, host:

And Mexico's economy took the most severe hit in Latin America. Because of its overwhelming dependence on the United States, the country's recovery depends on what happens north of the border. And as it turns out, the interdependence makes a difference for both countries.

NPR's Deborah Amos reports.

DEBORAH AMOS: It wasn't always this way. But after 15 years of NAFTA, the 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. Great in the boom years, but the U.S. recession has hit Mexico twice as hard.

Dr. ANDREW SELEE (Director, Mexico Institute, Woodrow Wilson Center): But 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.

AMOS: Andrew Selee is the director of the Mexico Institute at the Woodrow Wilson Center in Washington.

Dr. SELEE: So we have a sort of boomerang effect back and forth. The U.S. economy goes down, hurts the Mexican economy. But in return, as the Mexican economy struggles to get back on its feet, it also slows down our recovery.

(Soundbite of music)

AMOS: Puebla, Mexico, an inland city about two hours south of the capital, is struggling to get back on its feet. Downtown is historic - all cobblestone and Spanish churches. But the economy is global, based on manufacturing integration; made in Mexico, sold in the United States.

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

Mr. JULIAN ABED (Representative, Hewlett-Packard, Puebla): The crisis is affecting in our business, of course. We are a victim of what is happening. You have to think how to survive.

AMOS: Julian Abed is Puebla's representative for the American computer company Hewlett-Packard.

Mr. ABED: Now, I don't feel comfortable as senior partner from the United States now. Our bet was to have a trade with the United States, to share our destiny with everything. But they didn't. We are a new class of Mexicans who are fighting to have a position in the world.

(Soundbite of machinery)

AMOS: The massive Mexican downturn, with the slowest recovery in the region, has opened a debate about those close ties to the U.S. Some factories assembling jeans and T-shirts have closed. Auto parts factories are struggling. The Volkswagen plant has put much of the workforce on half-time shifts. Unemployment has been twice as high as in corresponding U.S. industries, says economist Gordon Hanson.

Professor GORDON HANSON (Director, Center on Pacific Economies, University of California-San Diego): 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.

AMOS: Hanson is the director of the Center on Pacific Economies at UC San Diego. His new research shows Mexico cushioned American manufacturing in the downturn because those orders were canceled first.

Prof. HANSON: 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.

(Soundbite of church bells)

AMOS: Father Jorge Galicia Amesqua sees the social cost of that risk. A year ago, he quit his job as a psychology professor to work at this 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. Father Amesqua says the downturn has touched every business.

Father JORGE GALICIA AMESQUA (Our Lady of the Forsaken): I have friends in Teotihuacan. They produced blue jeans. But they don't have clients in the United States, so they broke.

AMOS: And did they have to leave all of their workers go?

Father AMESQUA: Many of them, yes.

(Soundbite of conversation in Spanish)

AMOS: A few blocks away, he's opened a center in one of the poorest neighborhoods in Puebla with a food bank and a free clinic. And this is the dental clinic.

Father AMESQUA: Yeah. Every day we have new people.

(Soundbite of music)

AMOS: Puebla took a break from the troubles to celebrate Mexican Independence Day last month.

Unidentified Man: (Spanish spoken)

AMOS: It's a food festival as well as a national holiday. Puebla is proud of its local culture. But from here it's easy to see the interdependence with the giant economy to the north. There is a Starbucks, a Sears store, and Wal-Mart has more than 60 outlets in Puebla. Mexico chose globalization and free trade 15 years ago, and there are still Mexican entrepreneurs convinced the U.S. is the best bet for recovery. Francisco Rivera believes integration has been good for Mexico.

Mr. FRANCISCO RIVERA (Owner, Bona Sera RYT): 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?

AMOS: Rivera runs this family business Bona Sera RYT. His workers are packaging hats, scarves, baby clothes and socks, lots of socks.

Mr. RIVERA: Seven hundred and twenty thousand pairs a month.

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

VICTOR: Okay. Hello, everybody. My name is Victor, and I'm going to be your new English teacher.

AMOS: 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 he says the Mexican government has failed to adopt policies to help him compete. For example, business loans and more credit. Mexico's recovery, he insists, depends on more business with the U.S.

Mr. RIVERA: 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.

Deborah Amos, NPR News.

SIMON: And Deborah Amos's report comes courtesy of America Abroad, a monthly public radio international affairs program. Transcript provided by NPR, Copyright National Public Radio.