Mexico has thrived under NAFTA
Criticism of the North American Free Trade Agreement is familiar. NAFTA, implemented in 1994, is said to enable U.S. corporations to export production to low-wage Mexico, thereby depleting jobs at home.
This is certainly the political consensus, as both Democratic nominee Hillary Clinton and Republican nominee Donald Trump have made clear that NAFTA-bashing will play a large role in this year’s presidential election. Trump has gone so far as to say during a recent appearance in Michigan that NAFTA has put Mexico in a position to replace Detroit as the auto capital of the world.
To be sure, lower wages in Mexico are an incentive for U.S. corporations to export production. But it is doubtful that NAFTA is to blame for this reality. Long before NAFTA, corporations had the option to export production to Mexico. And U.S. corporations were indeed exporting production to Mexico and other low-wage countries.
Critics insist NAFTA has exacerbated this trend. The theory is that because NAFTA has eliminated tariffs between the United States and Mexico, there is an even greater incentive to export production, as the finished goods can be shipped back into the United States duty-free.
No doubt, production exports have risen under NAFTA. But it is doubtful that this trend is due to Mexico’s lower wages. Truth be told, wages in Mexico were much lower prior to NAFTA. Indeed, NAFTA’s original aim to raise living standards in Mexico has been largely realized.
A recent study published by Tufts University finds that Mexico, compliments of NAFTA, is now endowed with a middle class. The study cites the 50 percent reduction in the average tariff in Mexico, which has a reduced inflation and has extended greater spending power to the Mexican consumer.
NAFTA also envisioned an improvement in working conditions in Mexico, and in terms of pay scale this too is coming to fruition. Prior to NAFTA, the average wage in Mexico was 7 percent of the average union wage in the United States. Autoworkers in Mexico are now on a pay scale of 27 percent of the autoworker’s wage in the United States. And this is a conservative estimate.
Far from being a tool to exploit cheap labor in Mexico, NAFTA has been an instrument to improve our southern neighbor’s quality of life. This aspect of NAFTA is not politically fashionable. But it is more instructive than the conventional wisdom to which Mrs. Clinton and Mr. Trump both subscribe.
John O’Neill is a writer based in Allen Park.