The SMU Tower Center Sun & Star Program on Japan and East Asia partnered with the SMU Mission Foods Texas-Mexico Center for an all-day discussion of the Japan-Mexico-Texas economic and political relationship Jan. 30.
The first panel, which focused on how politics affect the economic relationship, featured Ulises Granados, professor and researcher at ITAM, and Justin Reeves, assistant professor of political science at SMU. The panel was moderated by the centers’ Executive Director Luisa del Rosal.
Diplomacy between Japan and Mexico is over 400 years old and has been anchored in trade and investment since the beginning. Currently, the auto industry is one of the most emblematic ones in this relationship=. As an example, Granados mentioned that Nissan has been operating in Mexico since 1966. Japan is Mexico’s second largest investor in Mexico’s auto industry, and 1 in 3 vehicles exported by Mexico originates from a Japanese company. Mexico also has over 10,000 Japanese nationals who have a permanent residence status in Mexico.
The question now, Granados said, is whether or not the Japan-Mexico trade relationship is mature. The candidates in Mexico’s upcoming presidential race have expressed interest in China as a more stable trading partner. Granados also mentioned that NAFTA fueled the movement of Japanese companies to Mexico. The majority of Japanese companies in Mexico (there are 1,111 facilities total) are in the El Bajio region, where there are fewer restrictions and a surplus of efficient workers. This region is also a high exporter to the United States. According to Granados, there are several areas of opportunity for the Texas-Mexico-Japan economic triangle, one of them being Mexico’s energy reform.
The three areas of the trade relationship are oil, agriculture, and the automotive industry, according to Justin Reeves. For a long time the agricultural lobby in Japan was the biggest “villain” to the trade relationship, but Japan has been opening up since the DPJ party came to power in 2009. Because of this, Reeves expects further cooperation from the Japanese government on trade with Mexico.
Granados considered that Japanese companies come to Texas because of its strategic location and for the existing business climate. He exemplified this with Toyota moving its headquarters to DFW. He also said Texas is already moving closer to Japanese companies in search of more opportunities, citing the high-speed train as an example.
Would Japan and Mexico work independently if the U.S. decreases its leading participation? Both panelists agreed they would, both in in their bilateral relationship and in the multilateral world. In the words of Justin Reeves: “Japan and Mexico will keep cooperating and doing what they can” to encourage the U.S. to join TPP.
The second panel focused on the economic relationship, and specifically the automotive industry with Hiroki Takeuchi, Director of the Sun & Star Program, and Thomas Klier, senior economist at the Federal Reserve Bank of Chicago. According to Klier, 80 percent of cars made in Mexico are exported. Nissan makes the greatest number of cars in Mexico and sells the most cars to Mexicans. To illustrate the complicated nature of building cars Klier explained the process of building a seatbelt, which crosses NAFTA borders five times before being put into the car.
Takeuchi explained Richard Baldwin’s theory of the second unbundling during his opening remarks. How do you know how prolific the agricultural trading relationship is? Takeuchi says you can tell because the California roll, which is made with avocado, is now available and affordable all over Japan. You can also summarize this dynamic global value chain by measuring trade. The economic impact of the Japan-Mexico-Texas relationship is $25 billion among the three countries.