NAFTA Has Been a Mixed Bag for Mexico
Art by Suharu Ogawa
Renegotiating the North American Free Trade Agreement has been an uphill slog. But there’s a nagging question: What’s in it for Mexico, the junior member of the three-nation pact? The trade treaty sure hasn’t showered a bonanza of prosperity on Mexicans in general.
NAFTA, passed in 1994, has benefited Mexican corporations, its wealthy elite, a burgeoning middle class, and the northern part of the country near the US border, where factories are humming making cars and other goods for export to America. The rest of Mexico, not so much.
Yes, such an analysis sounds almost Marxist. Yet the facts are undeniable. “They have a large, young population and sit on the doorstep of the world’s largest economy,” said Matt Benkendorf, CIO at Vontobel Quality Growth, which invests internationally. “They should be doing better.”
Over the past quarter-century, since NAFTA’s enactment, Mexico’s economic growth has been anemic, between 1.2% and 2.5% yearly. Poverty has not lessened, with around half the population still classified as poor. An estimated 2 million agricultural jobs were lost when family farms folded due to the onslaught of subsidized American foodstuffs.
Immigration to the US, whether legal or not, has grown since NAFTA’s creation, as indigent Mexicans fled north in search of work. That influx slackened off somewhat in recent years, yet now has edged up a bit.
NAFTA “created the perception that things would get better, but the truth is we have two economies, one of exporting and the other one left behind,” researcher Luis Rubio, a fellow at the Wilson Center in Washington, has said.
Nevertheless, net-net, the Mexican government is convinced that the nation is better off if NAFTA remains intact. Even the nation’s new leftist president, Andrés Manuel López Obrador, wants to see the agreement remain, although he hasn’t yet spelled out all his views on the subject.
Convinced that the US has gotten the raw end of the NAFTA deal, President Donald Trump has pushed to re-do the pact. No doubt, thousands of American manufacturing jobs have been shipped to Mexico, where the average manufacturing wage is around 10% of the $21 average US rate. Muddying the waters is a counter-claim that NAFTA created many US jobs to sell and service Mexican-made merchandise.
To be sure, the current trade balance favors Mexico, a situation that the president criticizes—as he does for other US trading partners. At one time, the US shipped far more to Mexico than the Mexicans sent north. In 2017, the balance was 56% to 44%, with the same ratio holding through May of this year.
At the moment, talks among US, Canadian, and Mexican negotiators seem stuck over the Trump administration’s demands. One of the biggest sticking points concerns US insistence that a new NAFTA expire after five years. Trump would prefer to scrap the three-way agreement and strike individual treaties with Mexico and Canada, though the two smaller nations know they have more weight if they remain in a tripartite arrangement.
Adding fuel to the disagreements is the White House’s slapping tariffs on Mexican and Canadian steel and aluminum. Both nations have retaliated, with Mexico imposing duties on American pork, steel, cheese, and other products. NAFTA largely eliminated tariffs among the three trading partners.
And for Mexico especially, a sharp irritant is Trump’s insistence on building a wall along the southern border and his labeling Mexican immigrants as criminals. Enrique Peña Nieto, the previous Mexican president, largely shrugged off Trump’s provocative language.
López Obrador, on the other hand, is a populist firebrand in the Trump mode who has responded with fiery words of his own that labels the US president’s ideas as being “against intelligence and against history.” One standard trope for a Latin left-winger is mostly missing from his speeches, however: He doesn’t blame the US for his country’s problems with poverty and crime.
Hence his stance in favor of renewing instead of scrapping NAFTA. Little doubt exists that NAFTA has transformed Mexico, largely for the better, even if the manna isn’t well-distributed. The pact has allowed Latin America’s second-largest economic power, after Brazil, to develop from an oil-based economy to a manufacturing exporter. For decades, Mexican politicians have railed against America. Since NAFTA, Mexico, which the US invaded in 1847, has lost its contentious approach to the giant from the north.
The treaty opened up Mexico for US investment, and foreign-owned factory jobs now stand at 500,000, representing a sixfold increase in outside capital since 1994. Mexican exports were just 10% of its GDP in 1993, the year before NAFTA’s enactment, and now stand at 35%.
While NAFTA’s fate does seem to be up in the air, Vontobel’s Benkendorf is sanguine about its prospects. “Trump can’t just tear it up,” he said, because it’s a treaty that Capitol Hill ratified. “Congress must have a say. And its business constituency wants to keep it.”
But a bumpy road lies between now and a conclusion to this drama.