Great Graphic: Mexico and China Unit Labor Costs

This Great Graphic was
posted by David Merkel on his AlephBlog
with a hat tip to Sober Look.
looks at the divergence of unit labor costs in China
and Mexico since 2007 through 2015.  

The Mexican peso depreciated 17% last
The yuan fell 6%.  That 11% differential likely swamped
the change in productivity and wages.  That would translate into even
greater divergence in unit labor costs.  The depreciation of the peso, if
not offset by rising inflation or other costs, can boost the competitiveness of Mexico but also could create
destabilizing dislocations. 

Mexico has a
number of
macroeconomic challenges, including drug lords, corruption, and declining oil output, which are
quite separate from trade and currency issues. 
  Some part of the
peso’s decline in H2 16 (~11.8%) was a function of a more confrontational
attitude toward Mexico by Trump.  Most of that loss was recorded after the US election.  
Ironically, the depreciation of the peso may boost Mexico’s
competitiveness.  It also risks further destabilizing Mexico. 

If the US Administration thinks Mexico is a
challenge now, imagine the challenge if the peso continues to depreciate on a
trend basis and the economy suffers
.  In the last few years, more
Mexicans have left the US to return home than entering the US.  Economic
stress could see a reversal and new flight into the US.  Mexico has
elections next year.  The Administration’s antagonistic stance may undermine
the center and facilitate the election of Mexico’s brand of a populist like AMLO (Andrés Manuel López
Obrador).   Mexico’s Economic Minister Guajardo is in Washington DC
today and tomorrow.  Today President Trump indicated the border wall would
being in months.  

Many American businesses and officials had
recognized that American prosperity requires prosperity outside the US,
including Mexico, Europe, and Asia.

  The issue may be how expensive it will be to learn the lesson


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