About 23 years ago NAFTA was first implemented, whichallowed Mexico to enter into a new trading agreement with the US and Canada. Atthat time, the deal was a promising step that would increase Mexico’s economicalgrowth and its internal development. The article contrasts Mexico’s productioneconomy with the surrounding countries since the signing of NAFTA, comparingthe Mexican economic and social indexes with its past economic performance.
Theresults show: Mexico position 15th of 20 Latin American countries ingrowth of actual GDP per capita from 1994 to 2016, the most basic economicevaluation of living standards Mexico underwent a collapse of economic developing after1980, with Latin American per capita GDP growing by just 9 percent, and Mexicoby 13 percent, from 1980 to 2000. Mexico’s per capita GDP growth of just 1 percent yearlyover the past 23 years is largely less than the rate of growth of 1.4 percentaccomplished by other Latin America’s countries. If NAFTA had been effective in bringing back Mexico’spre-1980 growth rate Mexico today would been of the top income countries , withincome per capita notably exceeding Portugal or Greece. It does not make sense that animmigration reform would have caused a large political issue in the UnitedStates, since relatively few Mexicans would seek to cross the border. As you can notice, the poverty rate in Mexico in 2014 was55.1% which is significantly higher than what the poverty rate was in 1994,according to Mexican national statistics.
Therefore, there is about 20.5million more Mexicans living below the poverty line as of 2014 compared to Mexicoin1994.The rest of Latin America experienced a decline in poverty for more than five timesas much as Mexico: 21 percentage points (from 46 to 25 percent) for the rest ofLatin America, versus 3.
9 percentage points (from 45.1 to 41.2 percent) forMexico. Wages for Mexican were almost the same in 2014 as in 1994,with a slight decrease in 4.1 percent over 20 years, and barely above their levelof 1980. Unemployment in Mexico is 3.8 percent today, as compared toan average of 3.
1 percent for1990–94 and a low of 2.2 percent in 2000; thesenumbers seriously understate the true lack of jobs, but they do not show animprovement in the labor market during the NAFTA years. NAFTA also had an adverse impact on agriculturalemployment, as US supports corn financially and other products wiped out smallfarmers in Mexico. From 1991 to 2007, 4.
9 million Mexican family farmers wererepositioned; while seasonal labor in agro-export industries increased by about3 million. This meant a net loss of 1.9 million jobs.
The poor productivity coming from the Mexican economy hasunsurprisingly led to a rise in Mexicans emigrating to the United States for abetter life.. The number of Mexican-born residents living in the United Stateshas doubled from 4.
5 million in 1990 to 9.4 million in 2000, and peaked at 12.6million in 2009. Basically from 1994 to 2000, the annual number of Mexicansemigrating to the US increased by a staggering 79 percent. Analysis : OnJanuary 15th ,1994, the North American Free Trade Agreement was launched and ittook Mexico to a new level of commercial agreement with the US and Canada.Liberalization and freeing of trade in textiles, agriculture and farming, andautomobile manufacturing was their main point of their attention.
NAFTA’s terms, which were put into effect gradually throughJanuary 2008, asked for the complete removal of most fees and tariffs onproducts and services traded between these three neighboring countries. Thetreaty also was crafted to protect different intellectual assets, initiate asystem of dispute-resolution, and through accordance, implement human labor andenvironmental protection. NAFTA appreciated bipartisan support—itwas arbitrated by President George H.W. Bush which passed through Congress andwas alter carried out under Democratic President Bill Clinton in the beginningof his presidency. NAFTA has essentially reformed the North American economicrelationship by influencing a unique integration between Canada and the UnitedStates’ advanced economies and Mexico’s growing country. The agreement upliftedand encouraged the tripling of regional merchandising.
The cross-borderinvestment between the three countries also developed considerably. Yet NAFTAhas remained a lasting target in the broader argument over open trade.President Donald J. Trump says the agreement has reversed U.S. manufacturingproduction, and jobs, to Mexico, and in August 2017 his administration relaunchednegotiations with Canada and Mexico with the goal of reforming it.
It isdoubtful to say that Mexico would have done better in the presence of NAFTA. Infact, we can demonstrate the productivity rate of Mexico with other regionalcountries since 1994 using available economic and social indexes.According to the center of economic and policy research inWashington DC, the growth of GDP per capita in Mexico from 1994 until 2016 hasincreased by only 28.7 percent, cumulatively, with annual rate of just 1.2percent. Therefore, it turned to be less in contrast with other regionalcountries in Latin America like Panama, Peru, Chile with (4.0, 3.
2, 3.0)percent annual growth respectively, in the same period. Thesame study shows Mexico’s growth ranks 15th of 20 countries in the GDP index.Those numbers are a clear indicator of the poor performance of Mexico since theimplementation of NAFTA comparing to countries that are not part of thatagreement.Another important fact we need to mention is Mexico’sgrowth rate in contrast with the rest of region since NAFTA, comparing to theone before it. According to the center of economic and policy research inWashington DC, Mexico increased twice its income per capita from 1960 to 1980,which was higher than that in its Latin American counterparts as a whole.
Interestingly, if that growth had continued to increase, Mexico would be a highincome nation today. Theregional growth of GDP per capita has declined from 87 percent in 1960-1980 toonly 9 percent from the period from 1980 to 2000, in other words, 0.9 annually.Mexico’s share in that decline was from 97 percent GDP growth per capita tojust 13 percent. In the period from 2000 to 2016, the regional GDP growth per capita was 1.5percent annually, with 0.8 percent growth rate for Mexico, according toFeenstra, Inklaar, and Timmer (2015) and IMF (2016).
Anotherstudy done Laura Carlsen, the director of the Americas program at the centerfor international policy, Shows the negative impact of NAFTA on Mexico’seconomy. According to her, American financial aid or what is called subsidyaiming to supporting US corn and others main produces, has damaged the Mexicanfarmer market by dumping it with subsidized corp making the pieces to drop andfarmer’s livings significantly insufficient. Consequently,around million have been forced to leave their farms to survive, and prices hasincreased making people’s life difficult. 20 million Mexicans live in foodpoverty, and 25 percent of the population can’t afford staple food not speakingof the 25 precent of children suffering from malnutrition. Anotherimportant negative outcome of NAFTA isthe dramatic increase in the number of Mexican migrants to the United States, with a rate of half a millionannually following NAFTA.
According to Laura Carlsen, NAFTA jeopardized farmerswhen multinational corporations controlled their lands that supported theirfamilies for decades. Moreover, the significant increase in poverty levelcreated a very fertilized ground to criminals to flourish and threatens thesocial and economic environment. Anotherstudy was done by National Autonomous University of Mexico (UNAM) affirms thatMexico has not achieved their goals within NAFTA in terms of decreasing thepoverty level in the country, with 55.
1 percent poverty rate in 2014 and 52.4percent rate in 1994. It is also useful to compare the performance of Mexico indecreasing the poverty level with the ones in the regional countries. The UNeconomic Commission on Latin America (ECLAC) assures that the poverty level inMexico dropped a little from 45.1 percent in 1994 to 41.2 percent in 2014, yetpoverty in the region including 19 countries declined significantly from 46percent to 25 percent at the same period of time.
Anotherimportant outcome of NAFTA is connecting the US economy with Mexico’s economy,making the latter vulnerable to economic fluctuations and crisis.With more than the two third of Mexico’s exports go to theUnited states and when the US Federal Reserve’s rose the US monetary policyrate in 1994, the peso crisis occurred causing a loss in the GDP of Mexico by 9.5 percent. Another example of the result ofintegrating the economy of the US and Mexico is the recession that happened inMexico following by the one that took place in the US first in 2000 caused bythe stock market issues and then in 2006-07 as a consequence of the biggestasset bubble issue in the world history. In that recession, Mexico has sufferedmore than any country in Latin America due to what expert refer as the negativeinfluences of the US economy on it with a decline in Real GDP of 6.7 percent from2008 to 2009.
AMexican manufacturing employment rate following NAFTA was expected to rise but it did not reach thehoped level for a couple of reasons. Like producing products assembled fromimported parts and components, which led to adding small values and little jobcreation. The biggest case happens in maquiladora plants which are owned byAmerican or multinational companies, where imports inputs occupy about treequarters of the value of their export. Secondly,Mexico losses the surplus it gains from trading with US to the deficit in goodstrade with Asia (about $55 billion with China), and $25 billion deficit withEurope. As such Mexico did not improve a lot in terms of increasing employmentrates from its trade.Lastly, the industrial growth rate was slow and China’sentering to the US market as a tough competitor have impacted the employmentgrowth of the manufacturing sector negatively.
Interestingly,Mexico is a better market for the US than China, despite the deficit in trade betweenMexico and the US towards Mexico, due to the surplus in US import to Mexicocomparing with the one to China. Theforecasts of rising US jobs within NAFTA, from increasing export to Mexico, wasoverestimated and turned out to be proven wrong. NAFTA proponents, claimed that opening Mexico to free trade andunregulated foreign investment would increase job growth and raise incomesneeded to create a stay-at-home middle class. There wasan effort in the early 1980s by a group of U.
S.-educated economists and businesspeoplewho took over the ruling Partido Revolucionario Institutional (PRI) to build aprivatized, deregulated and globalized Mexican economy. Among their objectiveswas tearing up the old corporatist social contract in which the benefits ofgrowth were shared with workers, farmers and small-business people through anelaborate set of institutions connected to the PRI. NAFTAhowever provided no social contract.
It offered neither aid for Mexico norlabor, health or environmental standards. The agreement only protectedcorporate investors and everyone else was on his own. NAFTA’s critics knew itwould stimulate more trade; that was, after all, its function. Instead, whathappened was that all of the benefits that came with new trade went largely tothe rich while the middle class and the poor would pay the costs, and thepromised growth did not materialize. AlthoughNAFTA is not the cause of all Mexico’s economic troubles, it has clearly madethem worse. Since NAFTA’s inception in 1994 the Mexican middle class has shrunkand the number of poor has expanded.
Economic growth was below the oldcorporatist economy’s performance and substantially less than what is needed togenerate jobs for Mexico’s growing labor force. TheNorth American Free Trade Agreement was meant to integrate the economies of theUnited States, Canada and Mexico by breaking down trade barriers among them,creating jobs and closing the wage gap between the U.S. and Mexico.
Whathappened under NAFTA was that heavily subsidized U.S. corn flooded the Mexicanmarket, putting millions of farmers out of work. Multinational corporationsopened up factories creating low-wage jobs at the expense of organized laborand the environment.
This, in turn, drove waves of migration north. Mexico has benefited less than its neighbors to the north.During NAFTA, Mexico has had the slowest rate of economic growth than withany other previous economic strategy since the 1930s. From 1994 to 2013, Mexico’sgross domestic product per capita has grown at a paltry rate of 0.
89 percentper year. Additionally,During NAFTA, Mexico’s economy grew much slower than almost every LatinAmerican country. NAFTA has boosted trade and investment, but has nottranslated it into meaningful growth that generates jobs.
One of the problemsit has generated is basically an exporting economy for transnationalcorporations, and not for the Mexican industry. The initiation of NAFTA in 1994pushed under a guise of a free trade partnership with Mexico that was supposedto bolster the economy and curb immigration did just the opposite. Heavilysubsidized US crops flooding in drove production down and consumer prices up.New corporations dominating the market collapsed small businesses across thecountry, sweatshop labor surged, 20 thousand of small Mexican businesses weredestroyed in NAFTA’s first four years. The price ofcorn, Mexico’s main staple, fell by 66% therefore ejecting at least two millionsmall from their land ,because of the lack of profit, and forced to migratenorth in the search of life-sustaining work. NAFTA’s model of neoliberaldevelopment exploits Mexico’s food independence. In post NAFTA Mexico 42% ofthe food consumed comes in from abroad.
Following this terrible policy about 22million Mexicans in a country of about 122 million live in food poverty, thenumber of undocumented immigrants coming to America increased a dramatic 185percent.NAFTA gave a major boost to Mexican farm exports to the United States,which have tripled since NAFTA’s implementation. Hundreds of thousands of automanufacturing jobs have also been created in the country, and most studies havefound that the pact had a positive impact on Mexican productivity and consumerprices.There is no doubts that NAFTA has created a greatopportunity for both American and Mexican nations by increasing the level oftrading and economic integration. Mexico however, has learnt a very profoundlesson that NAFTA by itself can not boost the economy and make miracles, but adeep and comprehensive reformation in the economic system would be able to putMexico among the top countries with strong and productive economy. Conclusion: The NAFTAagreement, signed 20 years ago, was believed by many that it would improve theMexican economy, create more jobs and decrease the amount of Mexicansimmigrating to the US. However, NAFTA had a horrible consequence on Mexico,instead, it ruined the economy, has shrunk the Mexican middle class andexpanded numbers of poor.
It had put millions of farmers out of work and thereal wages in Mexico have fallen significantly below pre-NAFTA levels as priceincreases for basic consumer goods the exceeded wage increased.