The economy of Brazil is the largest in Latin America, but when it comes to automobiles, Mexico is the region’s leader. Mexico owes the rise of its auto industry to a combination of economic and policy factors. The country offers a lower cost alternative for auto parts manufacturing and auto production compared to the United States, for example. Meanwhile, the Mexican government has pursued trade policies that supports auto exports, an approach that stands in contrast to Brazil’s protectionist policies.
In January, Mexican auto production increased 6.8 percent to 266,424 cars and light trucks, Fortune reports. Exports increased 15.2 percent to 204,907 vehicles. In 2014, total production topped three million. While most of those vehicles are headed northbound, intended for automobile dealerships in the United States and Canada, Mexico also has its sights set on its neighbors to the south, including Brazil.
Earlier this month, Brazil and Mexico renegotiated an auto trade agreement that, according to the Wall Street Journal, will now allow “$1.56 billion of duty-free vehicle imports for the first year of the agreement. That amount will rise 3% each year until the agreement expires, in 2019, when the countries return to a free-trade regime.” Renegotiating the agreement wasn’t easy. Mexico wanted to freely export vehicles to Brazil, while Brazil wanted new quotas.
Last year Mexico passed Brazil to become Latin America’s biggest auto producer. The transition stands as an example of how differing economic policies are leading to divergent outcomes. Taxes, transportation bottlenecks, powerful unions, and trade protections have hurt Brazil’s economic competitiveness and contributed to what economists expect is a coming recession, Reuters says.
In contrast, Mexico has embraced free trade agreements with multiple countries over the last 20 years. The country has celebrated the opening of new auto parts and auto manufacturing plants throughout the country. While the trade talks with Mexico have officially ended, it is still to be seen what impact Brazil’s policy decisions will have on the overall economy.