10th anniversary for NAFTA

The first of January will mark ten years of NAFTA. There is little doubt it has helped the United States and Canada, but how about Mexico?

Foreign investment in Mexico has increased dramatically. It now stands at $12 billion a year, more than India receives. Exports have grown by a factor of three, up to $161 billion. Mexico’s per capita income has risen 24%, to $4000 a year. All these trends were underway before NAFTA, but NAFTA continued and cemented them. It also is believed that the $40 billion Clinton bailout never would have happened without NAFTA. Finally Mexico has made significant steps toward democratic rule and now holds elections with relative freedom of political entry.

Why then so many complaints from Mexico? First and most importantly, many Mexican exporters have been devastated by competition from the Chinese, who pay much lower wages. To be sure, this is a real problem, but for Mexico to be the high-wage competitor itself says something about how far the country has come.

Second, many Mexican farmers are upset at competition from American pork and corn. Most of these farmers are not mechanized in any way. They push a plow through their fields with a burro or ox. It is hard to imagine how preserving these sectors could benefit Mexico’s future development. I am all for easing the relevant adjustment costs, but trying to keep these jobs would be no different than banning the car to protect the proverbial horse and buggy. The only difference is that many of these farmers don’t even use techniques from the horse and buggy age.

Keep in mind that free trade in food will be a windfall for Mexico’s urban poor. Furthermore many indigenous farmers grow food for their own consumption, not for sale to outside markets. Cheap American imports can’t make them worse off, since they can always continue their current time allocation if they wish. More likely, they will start buying more cheap foodstuffs and look for a different line of work.

NAFTA was far from a perfect treaty, but let us offer three cheers in its favor. It may well go down as the most lasting legacy from the Clinton administration.

A recent World Bank report confirms this positive view: “without NAFTA Mexican exports would have been around 25 percent lower than the actual numbers, foreign direct investment would have been around 40 percent less and the country’s per capita income in 2002 would have been up to 5 percent lower.” Here is a summary of the report.

By the way, did you know the Mexicans are the world’s biggest drinkers of Coca-Cola in per capita terms, exceeding even Americans?

The earlier figures in the post, as well as the Coca-Cola information, come from Business Week.


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