The Economics of Mexico’s Middle Class

Mexico has the 15th largest nominal gross domestic product (GDP) in the world and its economic improvement has been linked primarily to its involvement with the North American Free Trade Agreement (NAFTA) that was established in 1994.

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

A revised version of NAFTA was negotiated by President Donald Trump during his first term. It’s the United States-Mexico-Canada Agreement (USMCA) and it 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.
• Poverty has fallen dramatically in Mexico, falling from 36% to 21% over the course of a decade.

Mexico’s Middle Class

The income levels and living standards for the Mexican middle class have been up and down since the NAFTA agreement was signed and then effectively replaced by the USMCA. The number of people earning less than $6.80 per day fell from 36% in 2012 to just over 21% a decade later. Poverty is expected to fall steadily through 2026, as real GDP per capita is expected to increase.

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. The middle class benefited from increased levels of production in electronics and automobiles because NAFTA’s provisions allowed for these goods to be traded tariff-free.

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

Electronics and Auto Manufacturing

Both the electronics and automobile industries have grown significantly in Mexico since 1994 with free trade as the catalyst.

Mexico 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’s also one of the world’s top producers of electronic appliances.

Important

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

Mexico is 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.

More manufacturers are adding or moving their operations to Mexico as the economy and consumer dynamics of the country continue to improve. 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. It provides a wide range of jobs for the country’s population.

Rising Income Levels

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

Income levels in Mexico overall have been growing since the mid-1990s but they remain low by U.S. standards.

Future Growth

Economists forecast that Mexico’s economy will 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 they spend conservatively. More companies in the consumer-packaged goods and retail industries are opening 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 21 million subscribers as of 2023.

What Is the Average Daily Wage in Mexico?

The daily minimum wage rose to 278.80 Mexican pesos or $13.76 U.S. effective Jan. 1, 2025.

How Do Tariffs Affect Workers?

Tariffs can affect manufacturing because they must be incorporated into the costs of production. This leaves less money for wages and can result in pay cuts and even the loss of jobs.

What Is Mexico’s Top Export Overall?

Motor vehicles continued to be Mexico’s top export in 2024. In the first half of the year, Mexico exported $29 billion of passenger cars, and another $20.7 billion in vehicle parts and $20.6 billion of trucks. With total exports for that six-month period valued at just under $300 billion, the auto industry accounted for around 24% of the country’s exports.

The Bottom Line

Mexico is the world’s fifteenth-largest economy, thanks in part to free trade arrangements with its neighbors and other trading partners overseas. With a vigorous export economy, the middle class is growing and the level of poverty has fallen dramatically, but it’s not clear how changing trade relationships will affect the country’s development.