Mexico has the 15th-largest nominal GDP in the world, and its economic improvement in recent years has been linked primarily to its involvement with the North American Free Trade Agreement (NAFTA), established in 1994. 

NAFTA is a 1994 trade agreement that allows for free trade between the United States, Canada, and Mexico. Through NAFTA, most exports are traded among the three countries with no tariffs, eliminating trade barriers for goods and services.

A revised version of NAFTA, negotiated by President Donald Trump and called the United States-Mexico-Canada Agreement (USMCA) was entered into enforcement on July 1, 2020.

Key Takeaways

  • Income levels and living standards in Mexico have been rising steadily since the 1994 passage of the NAFTA free trade agreement.
  • Electronics and auto manufacturing are key industries.
  • The middle class in Mexico, though still small by global standards, is at 47% of the population and growing.

Since the NAFTA agreement was signed, the income levels and living standards for the Mexican middle class have been rising. In 2016, that middle class accounted for 45% of the country’s total households, at 33 million.  That is still smaller than the 61% average across the 37 nations in the Organization for Economic Development and Cooperation (OECD), an inter-governmental group that aims to advance economic progress. 

Still, Mexico's middle-class is expected to continue growing, with 3.8 million more households expected to move up to the middle range by 2030.

Policy Changes Helped

Improved financial stability in the country and increased support from the government have been helping income equality substantially in Mexico.

Meanwhile, the middle class has benefited from increased levels of production in electronics and automobiles, as NAFTA’s provisions allow for these goods to be traded tariff-free.

Electronics and automobiles have long been a leading manufacturing focus in the country. With increased production levels, middle-class workers are seeing more job opportunities at better wages.

Electronics and Auto Manufacturing

Since 1994 when NAFTA was agreed upon, both the electronics and automobile industries have grown significantly in Mexico, with free trade as the catalyst. 

Mexico now has the sixth-largest electronics industry in the world, and is the second largest exporter of electronics to the U.S. Leading electronic products manufactured in the industry include televisions, display monitors, circuit boards, semiconductors, and computers.

The country is a leading supplier of communications equipment, including mobile phones. It also is one of the world's top producers of electronic appliances.

Economists expect Mexico to be the world's fifth-largest economy by 2050.

Mexico is now the biggest manufacturer of automobiles in North America. Most of the industry in Mexico is represented by General Motors Company, Ford Motors, and Fiat Chrysler Automobiles. Other leading automobile manufacturers with plants in Mexico include Volkswagen, Nissan, Kia Motors, Mercedes-Benz, and Audi.

As the economy and consumer dynamics of the country continue to improve, more manufacturers are adding or moving their operations to Mexico. This trend is expected to continue, with the country likely to see an increasing number of manufacturers, specifically in the electronics and automobile industries.

Mexico’s Energy Sector

The energy sector is a highly influential factor in Mexico's economy. Its land is rich in natural resources that are ripe for commodities mining, exploration, and refining.

Pemex is one of the world's largest energy companies with a focus on upstream and downstream natural gas and oil operations. As such, it provides a wide range of jobs for the country’s population.

Rising Income Levels

Overall, Mexico’s economic growth has been linked simultaneously with the added economic advantages of free trade. At the same time, the country has benefited from an increased government focus on income equality reform.

Since the mid-1990s, income levels in Mexico overall have been growing, but they remain very low by U.S. standards. Minimum wage levels rose to 102.68 Mexican pesos, or $5.10 U.S. in 2019. The average household had an income of $843.

Future Growth

Economists forecast Mexico’s economy to grow to the fifth-largest in the world by 2050, primarily as a result of growth in its manufacturing and energy sectors. This growth is expected to add to the rising income levels and purchasing power of Mexico's middle-class consumers.

Studies show that middle-class Mexican consumers are optimistic about the future economy yet spend conservatively. More companies in the consumer packaged goods and retail industries are opening new operations there to capitalize on this optimistic yet conservative demand.

AT&T is one example. The telecommunications provider has expanded its high-speed internet service in Mexico, with about 18.6 million high-speed customers there to date.