Explain why an economic recovery in Mexico would lead to a reduction in Mexico's trade surplus.?

Question

Explain why an economic recovery in Mexico would lead to a reduction in Mexico's trade surplus.?

Answer 1

Mexico has a trade surplus because it produces more than it consumes, that is to say that Mexicans do not have the purchasing power (wealth) to be heavy consumers. If there is a economic recovery in Mexico and wealth increases than people will consume more, as the demand for goods increases Mexico, Mexicans will purchase more of the goods that they currently sell to foreigners, leading to a reduction in the trade surplus. If Mexico becomes very wealthy and demand outstrips domestic production then Mexico may wind up running a trade deficit (like the U.S.).

Answer 2

Basically because it will make their exports relatively more expensive to other countries which will lead a decline in their demand in the short term.  The two don't necessarily go hand in hand though.  Many Asian countries have maintained consistently strong trade surpluses while undergoing times of very rapid growth and economy prosperity.