Mexico/Brazil free trade pact would benefit U.S., global economies

Posted Aug 18th 2009 12:20PM by Joseph Lazzaro
Filed under: International Markets, Forecasts, Brazil, Mexico

Mexican President Felipe Calderon is urging lawmakers in his country and in Brazil to consider a free-trade agreement between the Latin American giants, Bloomberg News reported.

If it's approved, this would be no small economic development. First, the pact would further diversify Mexico's trade base: currently, 80% of Mexico's exports go to the United States. Second, and perhaps even more significant, the action would create spin-off commerce in each country. Typically, when free trade pacts are passed, they lead to increases in GDP and in aggregate demand, which leads to new businesses.

An emerging market growth engine

The significance for U.S. investors? The two nations account for about 70% of Latin America's GDP. Any trade pact that increases GDP and real median incomes creates potential new customers for U.S. products and services, as well.

It also potentially represents a new engine of growth for the global economy. Due to decreased consumer spending in the United States, other major economic regions (Europe, China/Asia, Brazil/Latin America) must increase both consumer spending and commerce activity and serve as growth engines for the global economy. Without those growth engines outside the U.S., the global economy will not be able grow at an adequate rate.

Tags: Brazil, Felipe Calderon, GDP, inthenews, Latin America, Mexico, trade pact