Mexico faces a moment of truth: will it appease Donald Trump’s anti-Mexico agenda or fight it?
The new U.S. president won the White House by scapegoating Mexico, a purported thief of U.S. jobs and exporter of rapists. Trump vows to scrap the North American Free Trade Agreement (NAFTA) among Canada, Mexico and the U.S. unless it is renegotiated as an “America First” treaty.
There is a widespread assumption in Canada and the U.S. that Mexico has been the biggest winner from NAFTA.
That’s not true.
True, billions of dollars of foreign investment have poured into Mexico each year since NAFTA went into effect in 1994. Mexico has an impressive middle class as a result. And educational and other social standards have improved somewhat.
But NAFTA has failed to deliver the higher and sustained prosperity its Mexican champions promised.
Mexico’s GDP growth has been anemic under NAFTA, just 2.5 per cent a year on average. That’s not remotely close to what’s required to lift most Mexicans from the subsistence employment and income that most endure.
In economic growth, Mexico under NAFTA has actually lagged behind other Latin American economies, notably Brazil and Chile.
After 22 years of NAFTA, more than half of Mexicans still live below the poverty line. That compares with about 16 per cent of Americans.
For more than a decade, the Mexican wage growth has stagnated.
Mexico’s exports have grown, but so have its imports.
In 2016, Mexico exported $33 billion (U.S.) in goods to the U.S. (All figures in U.S. dollars.) But it imported $33.2 billion in goods, mostly from the U.S.
Mexico’s agricultural sector has lost an estimated two million jobs under NAFTA. The treaty opened the Mexican market to heavily subsidized U.S. corn and other crops.
And the advanced technology that absentee owners have installed in Mexican factories has triggered the same job loss endured by Trump supporters in America’s industrial heartland. In both jurisdictions, automation and robotics are the culprits in loss of low-income, low-skill jobs, not a NAFTA that Trump has labelled “the worst trade deal maybe ever signed anywhere.”
After two decades of NAFTA, the deal’s U.S. and Canadian partners rank 3rd and 15th, respectively, among the world’s most competitive economies, according to the World Economic Forum.
Mexico ranks 51st.
On ease of doing business, calculated annually by the World Bank, Mexico ranks 47th to America’s 8th and Canada’s 22nd. And on Transparency International’s corruption perception index, the rankings are Canada, 9th; U.S., 18th and Mexico, 123rd.
Finally, the per capita income for the U.S. last year was $55,805; for Canada, $43,332 and for Mexico, $9,009. Mexico’s gap between rich and poor was already wide in 1994. Under NAFTA, income inequality has grown even worse.
Trump has cast Mexico as the great thief of U.S. manufacturing jobs. Yet among those U.S. jobs that have been lost to offshoring, more have gone to China and the Pacific Rim, South Asia and the low-wage U.S. South than to Mexico.
But offshoring is not the culprit in job loss, accounting for just 13 per cent of U.S. manufacturing job losses, according to a 2015 report by Indiana’s Ball State University.
The real villains in job loss are U.S. and Canadian captains of industry, replacing humans with computer-based advanced manufacturing systems in their ceaseless pursuit of higher productivity and profits.
As Trump has done since his November victory, predecessor Barack Obama relentlessly implored American CEOs to keep and create jobs in the U.S.
And in the blue-collar workforce, Obama failed, as Trump will.
It’s NAFTA-related foreign investment that mostly accounts for Mexico’s impressive pace of job creation. Mexico can boast a jobless rate of just 3.4 per cent, lowest among the NAFTA partners.
But the Mexican jobs are, in main, not “good” ones. A huge portion of Mexico’s workforce of 53 million people work at menial, low-paying jobs that lack job security and benefits.
The worry now is that — the low quality of jobs aside — the end of NAFTA would dry up the foreign investment that has driven job growth.
Almost tragically, successive Mexican governments regarded NAFTA as a silver bullet that alone would transform Mexico’s economy into one of sustained prosperity.
They neglected to exploit NAFTA’s benefits by diversifying the economy away from low-skilled work, creating centres of excellence, educating Mexicans in skills required by the 21st-century economy and investing sufficiently in research and development. (Government spending on R&D is at a seven-year low.)
Actually, the biggest winner from NAFTA is likely the United States. In the seven years after NAFTA went into effect, the U.S. created a record 23 million new jobs. Mexican imports from the U.S. have grown as the Mexican middle class has expanded.
And Mexico has helped keep U.S. manufacturers globally competitive. Under NAFTA, Mexico provides the same low-cost “platform” for which non-U.S. multinationals turn to low-cost Eastern Europe and Brazil.
Jorge G. Castaneda, the former Mexican foreign minister, now a professor at New York University, is not alone among Mexicans in believing that Donald Trump is at war with his Mexican homeland. And because of the similarities in Canada’s and Mexico’s experiences with the U.S., Castaneda’s recommended hardball approach to the U.S. is of more than passing interest to Canada.
Castaneda would play hardball with the U.S., simply refusing to renegotiate NAFTA, and letting Trump take the blame for the chaos in U.S. business in busting up North America’s elaborate supply-chain networks.
His Mexico would also balk at the “massive deportations” Trump vows, accepting only deportees the U.S. can prove are actually Mexican. (About half of America’s estimated 11 million “illegals” are from elsewhere than Mexico.) That lengthy and costly process would likely be a “humanitarian catastrophe,” earning global condemnation of the U.S., with parents separated from children and others left in limbo.
Castaneda’s Mexico would also fight Trump’s “hostile act” of building a wall on the Mexican border. A wall would create a field day for smuggling by organized crime syndicates. And it would divide sister cities like El Paso-Ciudad Juarez. Mexico would also abandon its costly and dangerous war on drugs, now that jurisdictions like California are about to legalize recreational marijuana.
If the description of Mexico above seems vaguely familiar, it mirrors the story of Canada. Canada also lacks a sufficiently diversified economy, is overly reliant on trade with the U.S., is a near-wasteland in R&D spending and has to stand up to a much larger neighbour.
We need to become allies of our Mexican friends — the oft-forgotten of the three amigos — in asserting our just claims to a shared North American prosperity.