NAFTA and Inequalities in the U.S. and Mexico
Donald Trump's statements that "NAFTA is the worst trade deal maybe ever signed anywhere" (Trump, 2016) have revived discussions about NAFTA's effects on the U.S. compared with Mexico. NAFTA has had plenty of positive effects on Mexican society, such as the rise of the middle class and the creation of a more stable job market which is less volatile than Mexico’s formerly oil dependent economy. However, as with any trade deal, there are many left out of this economic reform.
Smaller agricultural jobs are being pushed out of Mexico, as large subsidized imports from the U.S. are a cheaper alternative resulting from NAFTA. While Northern Mexico prospers from the jobs created by ease of trade, Southern Mexico suffers wage disparity as they had a primarily agricultural role in the economy before NAFTA was introduced. The cultural effects are focused on urbanization and the divide between city dwellers and rural communities. A more widespread and encompassing cultural effect is the shift in perception of Mexico's image as a legitimate economy with an open and fair political system.
Despite attempts to help the rural class, the majority of entrepreneurial activity remains concentrated in the North. Monterrey comprises a significant portion of Mexico's manufacturing output of metals, chemicals, machinery and equipment. Companies close to the border, with low transportation costs to the U.S. have better foreign investment prospects. Southern Mexico remains at a geographic disadvantage and at a price disadvantage to U.S. imports, for foreign investment and job creation.
Most automotive and transport related businesses will inherently start closer to the border as costs of transporting finished goods will be lower. Oil and chemical production is also concentrated towards the North. With this renewed focus on industry, Mexico's political climate leaves far left groups isolated. This is a stark contrast compared to their former popularity during PRI's dominant era.
The public seems to favor centrist political groups as opposed to farther left or right. The transition to clear cut capitalism has led to the emergence of fringe or extremist groups who cater to those left out of political and economic recoveries.
The various economic and political factors presented by NAFTA have created a divide between the haves and the have-nots in Mexico. Income inequality rose sharply between the years 1984 and 1994 following the gradual opening of the economy.
According to a graph comparing skilled to unskilled labor wages, the changes that contributed to income disparity occurred at the top end. Wage growth on the skilled, urbanized side of the population had more rapid change than that of the rural side. This divide is cultural as well, between those still remaining in rural areas, and those who have migrated to urban centers. Income inequality has steadily declined in urban areas, but remains high in rural areas.
Labor income has become a staple factor for reducing inequality in the urban sectors, but income has only marginally improved for those in the rural areas. Mexico’s government has used re distributive tactics like remittances and transfers of public service to help narrow income disparity in rural zones. However, past the year 1994, wage inequality has shown a generalized downtrend. This is due in part to increased public spending, but also due to a more educated workforce. General consensus is that Mexico's income inequality is shrinking, albeit at a slower rate.