NAFTA did precious little to increase Mexican investment in the United States.
BY STEPHAN HELGESEN
President Trump was right during his campaign to call out NAFTA as an agreement that needs a thorough review, despite what some special interest organizations of this U.S. job-killing program may say.
NAFTA enjoyed over two decades of relative anonymity before being thrust into the spotlight during the 2016 presidential election, and thank goodness for that. While there is no doubt in my mind that, over those two decades, NAFTA spurred considerable investment in Mexico by American companies, it did precious little to increase Mexican investment in the United States.
Furthermore, it gave rise to what Ross Perot called, “a giant sucking sound” of jobs being transferred from the U.S. to Mexico. And THAT’s the nub of the whole argument…jobs…and Mexican political stability…and immigration. It became crystal clear that after the ‘Peso crisis’ in the nineties, that Mexico needed to right-size its economy and provide more jobs for its citizens.
The U.S. also needed to stem the tide of illegal immigration from Mexico. Both countries had the same goals at that time: improve their respective economies and hold the line on illegal immigration.
So, from that perspective, NAFTA was a winner – until it became obvious to our labor unions that thousands of potential union jobs were moving south to the maquiladoras where American companies were saving a bundle on production/assembly costs. Lower union labor membership also meant a weakened negotiation position for the unions.
American computer companies, digital media and auto manufacturers were making a bundle in Mexico and profiting greatly from the agreement. So, too, were some warehousers, distributors, aggregators and transportation companies in border states like New Mexico. Unfortunately, the NM jobs that moved ‘south’ did nothing for the tax bases of other parts of our state which were busy trying to make up for previous manufacturing job losses.
In New Mexico, most of our exports to Mexico (47% of all our exports) are really destined for re-export back to the greater United States. Very few are consumed, locally, in Mexico. If these same factories in Mexico were moved back across our border and American workers were hired to replace the low-wage Mexican workers, many of our products would be priced higher, that is true.
On the surface, that might sound like a bad deal for the American consumer, but in fact, more money in American workers’ pockets has a trickle-down effect in American communities. It supports other, new American companies (like warehouses, transportation hubs, etc., that were once in Mexico) and service businesses.
That said, you might have to pay a dollar more for a hammer or a hundred more for a computer, but the net effect far outweighs the added selling price of goods made here. Then there is automation. U.S. manufacturers returning from Mexico would probably want to automate their U.S.-based factories more fully, and while that might cost some jobs, it would better position the companies to compete, internationally, AND support our growing robotics industry.
And let’s not forget the increased dollars to local communities in the form of new property taxes. (Ask Los Lunas how it feels about Facebook’s new investment.) So, let’s face facts; NAFTA wasn’t really a pure free trade agreement. It was a political pact masquerading as a free trade agreement with a bit of corporate welfare thrown in. It needs to be revised and re-written so that the ‘playing field’ isn’t tilting radically south.
On a personal level, I worked for the U.S. Government helping our neighbors in the Caribbean take advantage of our U.S. market under another so-called ‘free trade agreement,’ the CBI (Caribbean Basin Initiative). It was set up to help keep our Caribbean neighbors out of the Communist sphere of influence (like Grenada had almost done) and create some opportunities for employment.
Unfortunately, ‘economic nation-building’ isn’t accomplished overnight with the simple elimination of tariffs and improved market access, and the CBI faded into the background, proving that good intentions can’t guarantee good outcomes. The same is true of NAFTA. It’s high time to review it, redo it and reboot it.
Stephan Helgesen was a career U.S. diplomat with the U.S. Dept. of Commerce for 20 years. He lived and worked in 30 countries assisting U.S. companies in opening up export markets for their products and services. He is now an export consultant and author.