NAFTA: Who has the Short end of the Stick?

Donald Trump's statements that "NAFTA is the worst trade deal maybe ever signed anywhere" have revived discussions about NAFTA's effects on the U.S. compared with Mexico.

A recent talking point for U.S. media has been whether or not NAFTA offers fair and equal solutions for each country. This is an inherently flawed way of looking at the deal, as the differences between our economy and that of Mexico are vast. The positive gains made by NAFTA are much more pronounced for Mexico, “due to differences in trade dependence and tariff structure” (Burfisher, Robinson, Thierfelder, pg. 126). Prior to the signing of NAFTA, Mexico had a stringent tariff structure on imports. The PRI had kept economic focus on domestic agriculture subsidies and laborers using tariffs on imported crops and technology. NAFTA's signing opened up many industries to privatization, but also increased barriers of entry to others. For example, manufacturing and transportation employment increased greatly along the northern border of Mexico, due to its proximity to the U.S (James T. Peach and Richard V. Adkisson, pg. 483). This trade liberalization had a negative effect on Mexico's agricultural sector, as U.S. crops were subsidized, and produced at economies of scale (Charles L. Davis, pg. 109). Small, rural farmers were quickly left without options, as imports were made exponentially cheaper in a short amount of time. Amongst unskilled laborers in Mexico, NAFTA quickly lost popularity, as it introduced global competition (Davis, pg. 110). The failure of small peasant farms, as well as the formation of better infrastructure in northern Mexico, prompted rapid urbanization of Mexico (Davis, pg. 119). With this urbanization, came a political opening, and the end to the PRI’s dominance.

U.S. citizens who are not educated on the realities of trade, and economic differences between the U.S. and Mexico perceive an imbalance in the trade deal. This creates many concerns about job migration, especially among the manufacturing sector which has been most affected in recent years. Job losses in the manufacturing sector are overstated in terms of their relationship with NAFTA. Research conducted on the U.S. labor market in a post-NAFTA environment reveals that “while NAFTA has had some effect, the effects in the U.S. economy are indeed small and are over-whelmed by other U.S. macroeconomic trends such as a rapidly growing economy.” (Burfisher, Robinson, Thierfelder, pg. 129). The explosive growth of the tech sector, and the macroeconomic changes brought about from it are larger contributors to job loss as the U.S. economy allocates more jobs and productive resources to the services sector. Mexico’s loss of agricultural jobs can be attributed to the same cause: economic progression. This is a natural progression of a fully developed economy. However, to the uneducated eye, it appears that the U.S. manufacturing sector is getting the short end of the stick, when in reality the U.S. has been gradually moving away from manufacturing regardless of the arrangement. The same rules can be applied to Mexico. The decline of agriculture in favor of a more productive use of resources is also the result of economic progress (O’Neil, pg. 55).

1. Burfisher, M., Robinson, S., & Thierfelder, K. (2001). The Impact of NAFTA on the United States. The Journal of Economic Perspectives, 15(1), 125-144. Retrieved from http://www.jstor.org.ezproxy2.library.arizona.edu/stable/2696544
2. O'Neil, Shannon K. “Mexico Makes It: A Transformed Society, Economy, and Government,”Foreign Affairs, Vol. 92, No. 2 (MARCH/APRIL 2013), pp. 52-63.
3. Peach, J., & Richard V. Adkisson. (2000). NAFTA and Economic Activity along the U.S.-Mexico Border. Journal of Economic Issues, 34(2), 481-489. Retrieved from http://www.jstor.org.ezproxy2.library.arizona.edu/stable/4227577