In evaluating the claims, pro and con, about incipient revisions to the North American Free Trade Agreement, two things should be kept in mind. First, Mexico benefited substantially from the agreement, it didn’t do much for the U. S. one way or another, and Canada actually suffered a bit under the agreement. The actual impact on the U. S. of NAFTA was that it helped some people (mostly those with incomes above the median) and hurt others (mostly those with incomes below the median).
But even more importantly the gravest economic challenge to all three of the signatories is China not each other. Mexico in particular has been hurt by China’s mercantilist policies. But for those policies Mexico would have benefited much more than it actually did from the agreement and it didn’t do too badly by it.
Any revision to NAFTA should take both of those facts into account.
I hope we see some decent analysis of the proposed deal. I advent seen much yet. My initial thought was that it would make cars made in North America cost more, offsetting a lot of gains, unless we maintain tariffs against everyone else, and that creates its own losses.
My second thought (question) is what part does oil play? I can’t find good, reliable numbers on how much of our deficit is oil driven. If we need to import oil, not sure what difference it makes if it comes from Mexico.
Steve
In the first analysis; the biggest gainer out of the deal is Mexico. The requirement that cars need a certain amount of parts made with higher wage labor will probably cause the auto makers with Mexican plants to raise wages rather then relocate.
But this is actually a good thing; didn’t Ford give a raise to his workers once so his workers could buy what they were making? In similar fashion; the best way to balance trade with Mexico is to let Mexico consume more.
I thought the goal was to bring jobs back to the US, and balancing trade was the way to do that. However, if it makes cars cost more, why will we, the US consumer, but more cars made in North America. Also, Mexico has free trade agreements with many other countries that we do not. US companies likely keep sending work to Mexico anyway.
https://www.bloomberg.com/graphics/2017-trump-mexico-auto-jobs/
Steve
I thought and maybe still think that Trump is going to be good for trade. But he’s not a good negotiator, and no one in his party is with him on it.
Off-topic, it’s odd that for all of the vitriol directed at undocumented immigrants, no one who really gets upset about borders is for drug legalization. The last time I was in Mexico was in Tulum, two years ago. The people who ran the hotel I was staying at were from the north, in Monterey. They had educations and they had come to Tulum for safety, not America. The concierge recommended this place to us, and she was like where I’m from you never got into a restaurant that looks like that, because the narcos run it.
By the way; don’t take my comment as criticizing the deal. This is actually a win win deal vs win lose deal or lose lose deal or no deal. The deal essentially forces wages for workers to rise, because Mexican workers have the lowest wage, they benefit the most.
If Mexicans earn more – they also can buy more; including US made goods.
A trade imbalance is not sustainable long term; either economically or politically. So it’s going to close by either Americans restricting imports or Mexicans buying more exports. Which one is better for both countries?
Certain groups in Mexico, notably its racist governing class, benefitted from NAFTA, but the country’s average economic growth fell by over two-thirds after the agreement was signed. The available evidence from both Mexico and the U.S. is pretty consistent with an intentional assault on the working classes.
Mexico has a substantial trade deficit with China—it accounts for much of Mexico’s total trade deficit. As I noted that’s a problem for a developing country. Mexico isn’t alone.
BTW it isn’t just Mexico’s ruling class that is racist. When viewed by an outside Mexico’s class system is clearly by race with the most European at the top and most native population at the bottom. The mestizo middle is just as racist as the upper class if not more so.