Mexico facts of the day

About 40 percent of the value of U.S. goods imports from Mexico was made up of goods originally exported from the U.S. to Mexico, four economists (three of them then employed at the U.S. International Trade Commission) found in 2010. The equivalent figure for imports from China was just 4.2 percent. In a 2014 report for the Peterson Institute for International Economics, Georgetown University’s Theodore Moran and Lindsay Oldenski found that a 10 percent increase in employment at the Mexican subsidiaries of U.S. corporations led to a 1.3 percent increase in employment and 4.1 percent increase in research and development spending back home.

That is from Justin Fox, I still think the peso is slightly undervalued due to excess fear of Trump on this issue.

Comments

What specialized skills do Mexican workers have that American workers do not? Since we are still not at full employment it seems we should be training American workers in those skills it seems.

No it is not skills the US workers are missing, it is finding a good number of very dependable and hard working people with minimal career goals for $12/hour with no benefits.

If those are not skills then what are they? What are our schools doing teaching stuff that makes our workers not dependable, not hard working and have high career goals?

Making them self-regarding critical thinkers?

Pfft. Maybe in a bad John Lennon song.

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Perhaps you should rephrase that to "what are their parents doing teaching stuff that makes our workers not dependable...(?)"

.

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The schools are teaching them, they're being exploited by greedy capitalists.

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Maybe that would be easier if they would pay them such an exorbitant wage as equivalent to what the minimum wage was 50 years ago.

Since that would involve almost doubling the minimum wage (depending on how its calculated), I'm cautiously optimistic that workers in the US would be more attracted to physically demanding jobs which immigrants often replace them in.

The minimum wage 50 years ago (1966) was $1.25 which, per BLS inflation calculator, is equivalent to about $9.33. Do you just make things up and hope no one will check?
http://www.bls.gov/data/inflation_calculator.htm

The minimum is notoriously stair step and leggy.

At $7.25 is is below that straight 1966 projection. If it had been indexed we would have been saved a lot of drama, including probably the $15 craze.

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Depends on which price indicators you choose. Other indicators show its double that. I'll accept that it remains debatable, but let's not pretend that free apps or cheap laptops really make up for a doubling of real housing costs.

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Oh, and in terms of things we can look up, a good manufacturing job in Mexico pays $8 with wages and benefits.

http://www.manufacturing.net/news/2015/04/low-wages-trade-deals-luring-auto-plants-and-jobs-mexico

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None, probably. The key is that they will do the same work for less money.

Unemployment is well below 5%. Government programs to retrain American workers tend to be dismal failures. And of course, any American who is currently unemployed who you did train to do the work Mexican are doing now would almost certainly want more money.

Let's leave it to the free market to sort out what work Americans should do and what work Mexicans should do.

Then why not afford to Mexicans the same environmental and labor protections as Americans? It seems like they are more highly skilled (hard working, dependable) than American workers - are they not then entitled to a higher degree of protections than American workers?

Unemployment is artificially low - look at civilian labor force participation: https://fred.stlouisfed.org/series/civpart#0

No in the US long run, the good hard working dependable workers are going to long term settle for $12/hour with no benefits. They choose different career paths. (For instance the Carrier plant is at ~$20/hour with benefits.)

Or they start at $12/hour with no benefits, build skills, and move on to the carrier plant to work at a higher wage with benefits once they have some experience. No wonder we have a skills gap!

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Sure they start at $12/hour with no benefits...Is there a career with manufacturing jobs? I guessing there are some but not many.

Wouldn't it be smarter to take a part time vocational job and get a college education at the same time? Let us nursing and mechanics have more future than turning wrenches at factories.

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Environmental and labor regulations cost money. To enjoy the level that Americans have require a significantly developed capital and productivity base. For example you couldn't time travel the EPA to medieval Europe, impose current American regulations and expect that magically the sanitary conditions would converge to what we enjoy today. The issue isn't lack of regulations, it's lack of economic development.

You can't just take regulations that are designed for a country with $50,000 GDP per capita and impose them on a country with $10,000 GDP per capita. Mexican GDP is currently around what the US was around 1940. Therefore it may be fair to say that Mexico has to follow US labor and environmental regulations as they were enforced in 1940. But it'd be hypocritical to force Mexico to follow a much tighter regulatory than we did at their equivalent level of economic development.

Then why do we let them import goods made under a sub-standard regulatory regime compared to ours? Isn't that 'hypocritical' to the American worker?

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Mexico's current GDP per capita PPP is around $18,000, which is where the U.S. was at in 1965, not 1940. But when NAFTA passed it was closer to the U.S. GDP per capita in the 1940s.

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It is possible to insist that imported goods be produced under certain conditions which meet those domestically.

If the imported product is not produced under the same regulatory conditions, there can be space for tariffs even under zero-tariff agreements, since the laxer regulations imply space for the goods not being produced in similarly competitive production conditions.

So, for example, Trump might insist that no Mexican goods may be imported into the US without evidence that all workers in the supply chain had some social security access or other such things - and, to charge tariffs on all alternatives which could not demonstrate this regulatory compliance.

I'm not sure it'd go over well, and anyways I doubt Trump would like to take the route of improving the competitive situation of American workers by trying to force improvements in working conditions elsewhere. But if some more labour representative were involved in these processes over the years, there'd already be a lot more talk about that. (E.g., consider the labour rules Vietnam was asked to upgrade in order to be considered in the TPP.)

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"afford to Mexicans the same environmental and labor protections as Americans". Trump's idea exactly, but he'll achieve that by reducing the protections in the US. Let's think outside the box, folks.

Maybe we could use fewer protections.. or maybe more innovation in how best to provide those protections?

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Imagine if a shareholder were to lose their entire stake in a company if time they made so much as a hint of a move for the shareholder union to increase their capacity to negotiate collectively with the worker union.

I bet some people would be up in arms! Lose your whole stake just for suggesting collective representation in negotiation processes?

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The LPFR is a function of an aging population. 70-90 y/ olds tend not to work, and that segment of the population is growing faster then the overall population.

You're right, sorry about that. Here is prime working age (25-54): https://fred.stlouisfed.org/graph/?g=c51N along with the other series. Same trend though (spoiler: worst since the early 80s), just adjusted levels...

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Different environmental and labor standards probably contribute, but main problem is that Mexican autoworkers will accept a lower wage than their US counterparts.

In general, Mexicans are less highly skilled than Americans (Mexican GDP/hr worked is $18.3, US is $62.9; source: OECD). They're just willing to accept a proportionately lower wage.

I'm familiar with the drop in labor force participation rate- its not relevant. Less than 5% of Americans are looking for work and can't find it. That we have more old people, more disabled people, more lazy people, etc than previously is interesting, but irrelevant to the question of where cars are made.

main problem is that Mexican autoworkers will accept a lower wage than their US counterparts.

I think it might be more comprehensive to say that Mexican autoworkers are more willing to accept a wage that is reflective of their added value to the finished product. There's a reason the highest value-add manufacturing functions are still generally performed in the developed world.

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" Government programs to retrain American workers tend to be dismal failures."

I've seen the worker retraining mentioned almost every time trade comes up. What are the long term success rates of workers with access to "free" training versus workers without? Are there any studies that compare the two groups to see how beneficial such training is?

+1

Skills and education are often just a proxy for raw cognitive ability. High IQ people also tend to be skilled, because it's easier for them to learn things. But high IQ people also tend to be better at nearly every job, even if they have to learn along the way. Similarly low IQ still tend to be pretty crappy at cognitively demanding jobs, even if they're taught all the requisite skills.

Most physicists can become software engineers, even without any formal CS education. In contrast most auto workers will never be competent at writing no matter how many classes you send him to.

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I wonder how many employers are looking for people who get high scores on standardized tests and how many employers are looking for somewhat personable people who can take a job description and follow through.

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Unemployment is well below 5%

People with less than a high school diploma have an 8% unemployment rate (the "latest" at bls.gov, which is for 2015). We aren't anywhere near Great Depression levels, but there are still plenty of low-education American workers looking for employment.

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From the link above:

"Low labor costs and fewer tariffs are the swing factors. A worker in Mexico costs car companies an average of $8 an hour, including wages and benefits. That compares with $58 in the U.S. for General Motors and $38 at Volkswagen's factory in Tennessee, the lowest hourly cost in the U.S., according to the Center for Automotive Research, an industry think tank in Ann Arbor, Michigan. German auto workers cost about $52 an hour."

1) why pretend it is more complicated?

2) what should we expect one of Trump's "good jobs" to pay?

If it is $8, expect the GOP mandate to be brief.

If you enacted tarriffs/quotas on goods being imported you could get those U.S. jobs paying way higher--even all the way up to 58$. Of course that comes at a cost, cars will suddenly be twice as expensive, less people will buy cars --all the other industries related to cars will suffer etc. I wish politicians would be honest with costs, but there's no inherent reason why you can't "protect American jobs/wages"

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How naive!!! Repeat after me...Trump won with WWC voters because he promised the return of decent wages for manufacturing jobs in the Rust Belt. (Basically he will return them to the 1960 world!) That is why Romney did not win in 2012 because he followed traditional conservative position and in fact heavily depended upon outsourcing in his business career.

It is possible with 4.6% unemployment that Trump will not have to act much but renegotiating NAFTA, the worst trade deal ever, was the core part of his campaign! Other than the Wall and illegal immigration that is what Trump promised during his rallies and President candidates general work to achieve their promises.

WWC? I think you mean he won WWE voters.

Same thing.

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Imagine Texas were still part of Mexico. Oil would be exported from Texas to the US to be turned into goods, like food, exported back to Texas.

If States were still really sovereign nations as conservatives claim was intended, how is it different to export from Michigan, Indiana to Texas based on corporate welfare handed out by Gov Perry in his trade war or the other 49 States to get factories, which then assemble cars with cheap labor and then exported to Michigan and Indiana, than to export to Mexico and reimport?

What Gov Perry and Pence both campaigned on as great for their States is illegal under WTO trade rules and is the bases for Obama placing 100% tariffs on certain imported steels etc from China.

Economists start by justifying trade based on trading labor for labor, but then use that to justify trading land and property in the US for labor in other nations. Mexico is the closests to trading labor for labor, while China is trading US property for their labor, and Saudi Arabia is trading their land for US property, which the charge rents on, while we just burn Saudi land based on oil being available in infinite supply just as Locke considered the common land in the New World to be infinite in supply. Why isn't the Federal government handing out blocks of 640 acres to any landless person today? How about 160 acres? 40 acres and a mule? Isn't taking America Back all about returning to the good old days when government was giving away land with few strings attached? Why isn't land still infinite in supply like it was for centuries until the 30s when FDR claimed the land had run out?

"What Gov Perry and Pence both campaigned on as great for their States is illegal under WTO trade rules and is the bases for Obama placing 100% tariffs on certain imported steels etc from China."

Yea except an American worker can move to any state he/she may choose. Not true for workers going across those nations you listed. False comparison.

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Let's hope you're right that the fear is "excess"!

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"The China Trade Gap"

"The China-U.S. trade relationship is spectacularly unbalanced, with a gap between goods exports and imports that exploded not long after China joined the World Trade Organization in 2001 and that, while it has subsided a bit since last year, is still of a scale never seen before "Chimerica" came into being."

What were the predictions of economic change for the TPP? Would the massive trade balanced have been reduced or increased?

It wasn't about trade [tariffs now < 5% across the board]

It was about extending tenure of, and applying more draconian protections for, copyright, & creating extra judicial 'courts' for corporations to sue sovereigns.

TPP was mainly about non-US countries dropping tariffs (the US doesn't have high tariffs, excepting "countervailing duties" on "dumping" which is BS). TPP was also about reducing non-tariff barriers in non-US countries, which is the real reason why it is difficult for many US industries to export to countries like Japan. Abe was a supporter of TPP because he felt the exposure to US imports would help some of the more backward Japanese industries become more efficient. In particular, lowering of Japanese tariffs on farm, dairy, and other goods would help lower the costs of these items to Japanese consumers.

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Give credit for the negotiation of NAFTA where credit is due:

. "NAFTA was negotiated by the administrations of U.S. Pres. George H.W. Bush, Canadian Prime Minister Brian Mulroney, and Mexican Pres. Carlos Salinas de Gortari. Preliminary agreement on the pact was reached in August 1992, and it was signed by the three leaders on December 17. NAFTA was ratified by the three countries’ national legislatures in 1993 and went into effect on January 1, 1994."

Oh so now hypocritical bill is with Trump on disliking NAFTA. What a joke, bill.

Thomas, Unless you can deny it, your statement is the joke.

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I've never liked that Mulroney.

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In 1994, the year NAFTA took effect, the US had a $1 billion trade surplus with Mexico. The digure now stands at MINUS $60 billion. Anyone think this important?

in 1994, one American dollar bought approx. 3 1/4 pesos. Today an American dollar buys 20 and change pesos.

Anybody think this is important?

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I thought this Justin Fox column was pretty good, although there was one thing that troubled me:

"And a 2012 paper by Lorenzo Caliendo of Yale University and Fernando Parro of Johns Hopkins University concluded that the tariff reductions in Nafta had increased Mexico's overall economic welfare by 1.31 percent and the U.S.'s by 0.08 percent, while reducing Canada's by 0.06 percent."

These are shockingly small effects, and NAFTA is supposed to an example of a trade deal that went well. How long will it be before economists start to admit that the gains from trade are smaller than we thought?

"...and the U.S.’s by 0.08 percent, while reducing Canada’s by 0.06 percent.”"

Ouch, that's basically zero.

What is the error band? Is this effectively telling us the change in economic welfare is 0.00 +/- 0.10 ?

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A small gain is still a gain.

@Steve If this was any other issue, the abstract would read "The gain to the U.S and Canada from trade with Mexico is statistically indistinguishable from 0." Honestly, I can't think of any abstract where the authors reported effects that were THAT small.

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'small gain still a a gain'

Mosquito circumcision.

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In my University department, Pisa, Italy, there was a clear agreement, backed by numbers, that international trade impact was rather minimal. It was a stronghold of die-hard marxist thought. Make of that what you want.

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Paul Krugman wrote a good article on why he was for NAFTA back in 1996:

"HOW IS NAFTA DOING? It's Been Hugely Successful - As A Foreign Policy"
...
...
... "If job creation isn't the point of NAFTA, what is?Another possible justification is the classic economic argument that free trade will raise U.S. productivity and hence living standards. Few economists, however, thought the pact would yield large gains of this type. Mexico's economy is simply too small to provide America with the opportunity for major gains from trade. Typical estimates of the long-term benefits to the U.S. economy from NAFTA are for an increase in real income on the order of 0.1 percent to 0.2 percent.

So, where's the payoff from NAFTA for America? In foreign policy, not economics: NAFTA reinforces the process of economic and political reform in Mexico."

Giving rise to the cartels for sure - crony capitalist deals all the way down.

You might be right about that....

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There was a time when we thought we'd run out of white Americans and white Canadians willing to work in various jobs at low wages. So ... let the Mexicans do the chump work while freeing up people for more productive things.

It turns out that people are less fungible than economists might have thought (the unemployed manufacturing workers did not become software engineers, etc.). Which is almost always the case ...

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Mr. John Glenn is dead.

That's sad news.

Yes, it is.

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Yeah. What a life he lived, but this is what happens when you don't take NR every day.

What is "NR"?

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And how much does Mexico charge us to get our goods back?

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Don't pay too much attention to the polemical headline, but I found this an interesting read on trade. I learned a few things, though I recognize this is mostly just one side of the trade argument.

http://qz.com/840973/everything-we-thought-we-knew-about-free-trade-is-wrong/

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TC: "I still think the peso is slightly undervalued due to excess fear of Trump on this issue."

OK, this is a nitpick, but I'm sure Tyler knows that he really has no idea if the peso is undervalued or overvalued - and adding "slightly" makes this false confidence even worse, as if he could pinpoint it even beyond under or over valued..

He's evaluating the situation is weighting fear related to Trump excessively, by which standard he doesn't need to know anything at all about the fundamentals of the currency. Only that others are overweighting a certain kind of risk (.

Is how I read that ...

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TC: " I still think the peso is slightly undervalued due to excess fear of Trump on this issue." - a testable hypothesis, that can make you money...a.k.a. if you're so smart, why aren't you a teacher?

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Well! There's the solution! Move all our jobs to Mexico and we would magically have full employment in the U.S. Why didn't I see this before???

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