The smallest economy, Mexico has emerged as biggest winner of NAFTA deal

OTTAWA – Ross Perot may have had it right after all about who would win under NAFTA.

The North American Free Trade Deal was an important step for all three members, but the evidence points to Mexico — at the time the weak sister in the group that included two G7 economies, the United States and Canada — as by far the biggest winner.

On the 20th anniversary of the pact, Mexico — in 1994, an insular, economic basket case — has in two decades emerged as a forward-looking country with expanding global reach, a handful of world-class corporations and a ballooning middle class.

Perot, who twice ran for U.S. president in the 1990s and made his name as an anti-NAFTA crusader, generally saw that coming although he focused his barbs on what the U.S. would lose in what he termed “the giant sucking sound of jobs going south.”

Perot’s fear was that U.S. firms would flock to where labour costs were cheapest. To an extent that has happened, and it can be argued that Canada too lost critical manufacturing jobs to Mexico.

While there are some in Mexico who would dispute the characterization of their country as the big winner, the numbers make a strong case.

Mexico under NAFTA had a rough start, because of a coincidental pesos crash just as the deal was getting under way. But the country has grown into the one of the more robust emerging economies with exports of about $1 billion a day, more than 10 times what they were in 1994.

Mexico is now estimated to be the world’s 13th-largest economy with total output similar to Canada’s, although on a per capita basis it still lags.

“I think NAFTA has been excellent for Mexico,” says economist Jaime Serra Puche, the Mexican trade minister at the time, adding it would have worked even better if Mexico had not waited almost 20 years to bring in internal reforms to the economy.

“Now with the reforms that are finally taking place I think we are going to gain competitiveness and the platform that has been constructed mostly for exports and manufacturing is going to become stronger.”

Some of that has come at the expense of Canada, or so believes Jim Stanford, an economist with the Unifor union. Under the deal, Mexico has gone from a bit player in the North American auto sector to the second-largest participant with almost 20 per cent of total production, compared with Canada’s 16 per cent.

“Heavy truck shipments in Canada collapsed by 75 per cent between 2006 and 2011. It’s an incredible example of a manufacturing catastrophe and NAFTA was absolutely a key part of it,” he says.

Serra and others who have studied post-NAFTA impacts agree that Mexico’s manufacturing sector, and particularly the auto industry, has been a big beneficiary.

But they don’t give all the credit to the deal.

Even before 1994, Mexico had started on the road to trade liberalization and economic stability, by giving its central bank independence, for instance. NAFTA may have been the last and most important piece of the puzzle, but not the only one, they say.

Overall, trade deals are often oversold by both proponents and critics, says Angeles Villarreal, a trade specialist with the U.S. Congressional Research Service who co-authored a paper on the deal earlier this year.

“It didn’t benefit as much as the optimists predicted, but also the negative effects weren’t as severe. There weren’t huge job losses,” she says.

On the plus side for Mexico, the auto industry has taken off, skills have improved and manufacturing has increased — and not just low-skilled factory jobs, she says.

On the negative side, there were losers as well, particularly firms propped up by high tariff walls and small subsistence farmers, although even here the evidence is unclear. Villarreal says it’s difficult to separate the NAFTA effect on farming from that of land reform that came at about the same time.

Christopher Wilson of the Mexico Institute at the Woodrow Wilson International Center in Washington says while there were losers, NAFTA has to be considered an overall success for the country.

“Mexico at the time was the smallest, now the Mexican and Canadian economies are similar in size,” he points out.

“One of the big stories in Mexico has been the slow but steady emergence of a middle class that’s now about half of the country.

“It’s not the same as the middle class as the U.S. or Canada, but it does mean they are not in poverty, they now own a car, they go to the movies, they take a vacation. It’s transforming the country,” he says.




Browse

The smallest economy, Mexico has emerged as biggest winner of NAFTA deal

  1. Good for Mexico! Now if they’d just legalize drugs they’d solve their biggest problem and do even better.

    • Yeah if they legalized drugs, our mexico choices would improve exponentially.

      We could head off to Mexico for winter warmth and end up either robbed and stabbed to death on some beach or laying in some hospital bed dying from hepatitis. The place could be a true Emilechka Nirvana.

      • Drug wars and drug lords would be gone, jamboy. There would be no more black market.

        • lol drug lords would not be gone, they would diffidently increase. think of what you say. if they legalized drugs in mexico, carels could legally produce these substances. most drugs in mexico dont stay in mexico, they are shipped to the biggest drug using country in the world. ever heard of it??its the USA.

          • When Prohibition ended….so did the bootlegger gangs in the US.

            The same will happen with drugs.

            The US can then end it’s own failure of a ‘war on drugs’

          • Even many US states are legalizing it.

          • Doubtful. If anyone could grow pot, have it, store it and smoke/sell it, say $20/bushel, no drug cartel leader is going to be buying a Lamborghini or Pantera on the price of weed.

        • Are you that delusional? The drug violence in Mexico is from people who plan on smuggling those drugs into the USA, not from domestic consumption. But I know, you’re just repeating Justin Trudeau talking points. Carry on.

          • Ricky! How are ya? Was Santa good to you?

          • she claims ‘to not be partisan’ i often question her intelligence. do you truly believe the cartles target customers are the poor Mexican peasants they employ?? or the richest country in the world just to the north. but her point on what happened 80 years ago shows everyone how delusional she is.

    • Agreed. $20/bushel for weed isn’t going to fund cartels of criminals.

      If USA and Canada can’t deal with the people who fund the crime in Mexico, the logical step is for Mexico to make it legal and let US and Canada deal with it.

      Less taxing on the Mexicans to make them even more effective and efficient so they get more of our jobs and wealth.

      But depends how much corruption the NSA has on the current leaders of Mexico…is it enough to keep the ruse going so criminals get high prices?

    • Yep, you had a moment of brilliance. As if Mexico legalised it, drug loards will not profit.

      Then Candian and American dopers that fund the drug cartels become our problem and not pushed off to Mexico. Uruguay just legalized it for that reason. Why should their governments tax their people to enforce US/Canadian funded drug problems?

      So EmileOne, we finally agree on something. Part of why Mexico is doing so well as they are not taxed like slaves and have far less inflated prices with hidden taxes and protectionism.

      But hey, in Canada cops keep dope costs high so criminals can maximize profit and we get the bills and police state.

  2. Biggest reasons are less government debt and less taxing the slaves.

    If Mexico legalized drugs, the cartels would fold up overnight. No organized crime at $20/bushel for legal weed. Bowing to USA (and Canada) who will not properly deter the crime the fund the criminals well with high prices and lour LE does prop up prices for the criminals, isn’t one that is good for the Mexican people. Many countries are legalizing it, even some US states as submission of people with Orwellian police state isn’t working for bankrupt cities and states.

    USA also spends almost 1000 times more on the sacred cow of NSA/CIA/military. A huge tax on Americans. And Canada is so tax greedy and price fixed a 50 cent beer is $4 in Canada. We even tax cheese, meat, cars, cable up to 300%. No Mexican is paying $50/month for cell at our service levels as they are not a tax inflated economy of debt.

    I know, as one of my investment favorites is Mexican, as the returns are better and the currency is more stable than the CAD.

    But I am sure Ottawa has lots of excuses as they device us out of our money to fund corruption, waste, inflated contracts and $400k mafia checks. After all, have to bailout crown corp unions and management…on the backs of people working for no pensions and retirement 67 poverty.

  3. Uruguay just legalized marijuana as they don’t want to deal with USA (and Canada) people funding organized crime with high prices.

    Good move on their part. Less people will die at $20/bushel for weed than the US/Canadian LE price prop up for crime gets.

  4. NAFTA actually resulted in ALL countries being winners, not just Mexico. What an ignorant distinction to make. But I guess Union leadership needs some “stat” to point to declare NAFTA a failure in the face of all the evidence that says otherwise.

Your email address will not be published. Required fields are marked *