the Saddle

The tenth birthday of the North American Free Trade Agreement is this week, so I guess now is as good a time as any to look back and see what was accomplished and what was just smoke.

Depending on how your point of view, Nafta was a sucess and a failure. Alot of claims made about it (I remember these well, I was a Senior in High School then) were way to large for any single trade pact to accomplish. Certainly the winners were the US and Canada. While the fears of the US of jobs loss to the ‘Giant sucking sound’ south of the border (although some manufacturing did leave – the US had its largest decade of expansion and job creation in history) never fully materalized. Canada was most concerned about loosing tax revenues which help to support its large social welfare programs. After 10 years they are still on par with most of Europe for services for their citizens.

Mexico, the one who was supposed to benefit greatly from the pact, has seen less impressive results. First of all, farming has collapsed, since the small family farm simply cannot compete with the efficiency of a much more technological american sector. However, corn imports from the US does mean cheaper tortillas for the urban poor. Also the Tequila Crisis of the mid 90′s wasn’t kind. As the Mexican gov’t was forced to float the peso it quickly devaluse to 1/5 th of its amt. vs. the dollar. However, Mexico recovered from this quicker than its previous two banking crisis in the early 80′s with some help form the US who
(a) didn’t want to see its new trading partner fall into disrepair, but also
(b) was making the case for trade liberalization and a failure in Mexico would not only hurt creditability but stymie and global arrangements the Clinton administration was pursuing.

Currently wages in Mexico are just returning to pre-crisis levels, so it is a bit early to see large scale positive development. However in these 10 years China has joined the WTO and is a derect competitor for manufacturing and cheap labor. Whether Mexico will retain these industries or loose them overseas is inconclusive.