Jessica De Alba-Ulloa, Ph.D.*
Twenty-three years ago, Canada, Mexico, and the United States agreed to continue and enhance the natural process of economic integration, pushed by the private sector, in order to take advantage of their closeness and potential markets. This action intended to combine the strengths of each of the three countries, and began as an experiment, with the reluctance not only from Canada, but from different sectors in the U.S. and Mexico, mainly the unions, along with some other groups, who didn’t understand the benefits that would arise from the new partnership.
The North American Free Trade Agreement (NAFTA) brought benefits to all three countries and most of their citizens, leaving behind those who were not ready for open markets and competition. The first ten years of the agreement were astonishing. Mexico doubled its share of the Gross Domestic Product (GDP) to 60% compared to 27% in 1984; trade and foreign investment in North America since 1994 has been increasing steadily, with some drawbacks from 1999 to 2002 which may be explained by China’s entry to the World Trade Organization (WTO), and the terrorist attacks of 9/11 in the U.S. and then again, a descent in 2008 due to the Lehman Brothers’ crisis, regaining momentum and increasing figures after 2010.
Though, after twenty-some more years of the agreement, some considered it exhausted. Several times there have been voices suggesting its reopening and updating, but officials in the U.S. and in Canada deemed this step unnecessary, back in 2014. It was thought that NAFTA would reorganize itself through the Trans-Pacific Partnership (TPP), the negotiated agreement between 12 countries designed to counterbalance China; from which the U.S. under Mr. Trump’s presidency already has mistakenly withdrawn. Now, things may change again thanks to the erroneous perceptions of president Trump regarding the trilateral agreement. During his presidential campaign, he threatened to denounce it. Now as president, the most probable outcome is a renegotiation which can be beneficial but maybe counterproductive if it gives in to populist misconceptions, trading progress for uncertainty. Under this potential scenario, Mexico is already conducting consultations to study alternative courses of action concurrent to the negotiation.
But then, in an international context with new emerging markets, ferocious unfair competitors like China, a deep global economic crisis, populist regimes campaigning against free trade, and the rise of terrorism, North America must be looked upon as a greater source of prosperity. North America is not about trade only, it is also a strength of co-production within the region, of supply chains which work and generate jobs, highly competitive products, and services. More than half of that trade is intra-firm and focuses on a few key manufacturing industries, such as automotive and electronics, which have created mayor regional production networks. As the Wilson Center posits, United States-Mexico trade is unique, since there is “production sharing”, where 40 percent of the content of U.S. imports from Mexico is produced in the United States, meaning that “forty cents of every dollar spent on imports from Mexico comes back to the United States, a quantity ten times greater that the four cents returning for each dollar paid on Chinese imports”.
Furthermore, the combined North American content makes US exports more competitive in the world markets.
Analyzing competitiveness, KPMG placed Mexico in the 3rd place after China and India, showing that it is the most competitive country in North America. Manufacturing outsourcing costs show that now Mexico is more competitive than China. Although this was not the case during 2005-2006, when China was far more competitive, conditions now have reverted and it is no longer the case. Production competitiveness is further enhanced by a significant reduction in transportation costs. Also, there is great opportunity for enhancing integration; according to the Bush Institute, technological changes in energy extraction, production and distribution have combined with the energy reform policy opening in Mexico, are set to secure a competitive advantage in industrial production, turning the partners into global energy leaders, notwithstanding oil price fluctuations.
But for this to happen, the lackluster leadership from the governments of the three countries to give continuity to the vision of a competitive North America must stop. Even if the number of manufacturing jobs may continue to decrease in the U.S. because of new automation technology, American enterprises which left both, the U.S. and Mexico as their manufacturing base and moved to China, should rethink their strategy and instead, consider of strengthening manufacturing, production, consumption and exports within North America, with a tremendous potential back home.
Beyond the toxic rhetoric of Trump about Mexico and free trade agreements, citizens need to understand the causes of the economic slowdown, and change their purchasing habits, as well as their market strategy: stop buying Chinese products, in particular, “American” products made in China. Instead, they should only buy “North American” products and by doing so, they will be achieving first, strengthening their own economy, second, forcing U.S. enterprises to move back their manufacturing to the region, taking advantage of Mexican co-production competitiveness, and helping this country to further bolster its economy, which would also mean a greater reduction in illegal migration, thus, bolstering the economy of the whole region and bring jobs back. And lastly, forcing the governments to pay attention to regional integration policies.
Also, the private sector must push for a different approach. Not only for not leaving NAFTA, but also demanding to bolster border infrastructure, since, according to the Bush Institute, delays at land borders undermine security and add billions to the cost of production, reducing the ability to compete on world markets. A “Great Wall” would simply signify more barriers to trade, while doing nothing to solve security issues.
A strong North America can balance China’s aggressive market take-over. More effective and smart integration will bring greater growth, living standards will rise and a more stable and prosperous neighborhood will be the result. North American integration is thus in the benefit of the three countries and its citizens.
* Researcher, School of Global Studies, Universidad Anáhuac México. Some excerpts of this article have been published in the electronic magazine of the Mexican International Studies Association (AMEI).
