Broker Check
Friends: Will Mexico Be There for Us?

Friends: Will Mexico Be There for Us?

April 01, 2024

In 1994, NBC launched their extraordinarily successful sitcom, Friends. They initially asked the American rock band R.E.M. to allow their hit song “Shiny Happy People” to be used as the theme song for the show. R.E.M. declined the request (I wonder if Michael Stipe and the guys regret this, given the royalties). Subsequently, the song “I’ll Be There for You” was written as the theme song for the show. The Rembrandts, a fellow Warner Brothers artist, performed it.

Source: Rhino

For those of you who would like a reminder of the theme song or have never seen the music video, below is a YouTube link for the song, with an assist on the footage from the cast of Friends.

The Rembrandts- I'll be there for you (official video)

And just because it is an excellent song with a unique sound, below is also a link for “Shiny Happy People” from R.E.M.

R.E.M. - Shiny Happy People (Official Music Video)

Citizens of the United States found out very quickly during the COVID-19 coronavirus pandemic who our real “Friends” were. During this time, the United States healthcare system ran short of critical supplies and prescription drugs primarily manufactured in China. When we asked China for help then, they did not respond as we hoped or needed, much like R.E.M. turned down the creators of the future hit TV show Friends.

Lessons learned about supply chains that were sourced far away, in order to recognize cost savings from cheap labor, have given way to a new phenomenon known as nearshoring or friendshoring. We learned the hard way that it is not wise to depend on a single country across the ocean for the manufactured goods our citizens need.

Who benefits from this epiphany? Great question. It seems that Mexico has been the biggest beneficiary of friendshoring. After trailing behind Canada and China as trading partners with the United States for the last several decades, Mexico became our number one trading partner in 2023, as shown in the chart below.

It seems that Mexico has many advantages when it comes to manufacturing and supplying things consumers need in the United States. First of all is proximity. It is much easier to receive things by truck or rail from a country just south of your border than to ship them across an ocean during challenging times. Remember the hundreds of ships backed up at the Los Angeles and Long Beach harbor ports during the pandemic?

Source: NBC News

Secondly, Mexico is now the world's second lowest-cost labor provider, trailing only India. China, which enjoyed its position as the world's cheap labor source for many decades, has dropped to seventh globally, as wages have risen, which you can see in our next chart.

Source: The Reshoring Institute

Finally, it helps to have friendly relationships between governments and regions. This includes trade agreements, such as NAFTA. The northern part of Mexico is close to the United States and has the necessary infrastructure and skilled labor to support manufacturing.

This has led to the United States re-creating supply chains, with multiple countries benefiting from what has happened in China over the last few years. India, Vietnam, Thailand, and Indonesia are also benefiting, in addition to Mexico.

The United States is counting on Mexico to “be there for us,” just like the Rembrandts were there to record a catchy theme song for the benefit of the TV show Friends. We thought this was an important message about lessons learned the hard way by the United States during the pandemic. The CFPs of Impel Wealth will do our best to keep you informed as we continue “Moving Life Forward.”

© 2024 Jesse Hurst

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

Investors cannot directly invest in indices.

Featured blog image source: Dmytriieva