COMMENTARY: NAFTA's virtuous circle

NAFTA should be seen as a vehicle that helps our neighbor help us

By: Troy Ryley
Photo: Chess Ocampo/Shutterstock
   The North American Free Trade Agreement (NAFTA) and its effect on the United States has come under fire recently as President Donald Trump has voiced a desire to either renegotiate or terminate NAFTA and implement additional taxes on goods that are made in Mexico and sold in the U.S.
   However, this would be an economic mistake for North America.
   A significant number of U.S jobs and exports come as a result of North American trade. According to the Office of the U.S. Trade Representative, “U.S. exports to Canada and Mexico support more than three million American jobs” and U.S. manufacturing exports have increased 258 percent since NAFTA was implemented.
   Additionally, with NAFTA’s six-month cancellation clause, if the U.S. defaults on the agreement, it would create a rise in tariffs on a number of goods between countries.
   While there are some improvements that can be made to NAFTA, it’s on the right track to promoting free trade and driving economic growth for all of North America. Terminating NAFTA would not only eliminate the ultimate objective of free trade between the countries and increase the cost of goods, but would further damage Mexico’s already fragile economy and ultimately damage our entire North American “neighborhood.”

   Ending NAFTA Destabilizes a Friendly Neighbor. Due to factors such as recent fuel price hikes and the continued devaluation of the peso, Mexico’s rather fragile economy is at a tipping point. U.S. goods are currently more expensive for Mexicans, and it is cheaper for U.S. companies to produce goods in a devaluated economy, which is why some companies have moved production to Mexico. In many ways, this has helped support the development of Mexico’s infrastructure in recent years, and hindering trade would undo the progress that has been made.
   It’s important to point out that there are countries that have a natural devaluation of their currency, such as Mexico, and there are countries that are artificially devaluating their currency, such as China. And unlike its extremely amicable relationship with Mexico, the U.S. has faced constant issues with China on many fronts. And yet, as Americans, we have been openly transferring our wealth to China through the purchase of Chinese goods. This increases China's wealth and allows it to become more of a force.
   Mexico isn't a threat to the U.S. way of life – it is our friendly neighbor down the street. And our domestic economy would be much better off with a strong middle-and-upper-class neighbor in the south, much like the one we have in Canada to the north. Doesn’t having a strong neighbor with a stable economy and growing workforce benefit all of North America? After all, would you or I want our neighbor down the street to not be fully unemployed and have to resort to the informal economy to survive? We’re all better off if our neighbors have successful, productive jobs and can contribute to shared economic success.

   American Contribution to Mexican Problems. While no one can argue that Mexico has its problems, the U.S. is not entirely blameless in the situation. It’s a difficult fact to face, but if the U.S. did not consume significant amounts of narcotics and other drugs, there would not be illegal drugs flowing through Mexico.
   These informal products don’t necessarily originate in Mexico, but they are a burden on the Mexican government, which is forced to deal with cartels that are partially financed through U.S. drug consumption. Until our demand is curbed, it’s important to remember that we can’t necessarily place all of the blame on Mexico for being a drug route for drug traffic to the end consumer, which is in the United States.

   The Challenge of Building a Wall. Many of the stated reasons to end NAFTA have virtually nothing to do with unfair trade practices on Mexico’s part, but rather involves many Americans conflating issues of illegal immigration and cartel violence with the issue of free trade. And some see building a border wall as an easy fix to solve all Mexico-related problems.
   But the border wall plan promoted by President Trump is also a tricky economic issue. Today, there is in fact a “virtual” wall that exists between the U.S. and Mexico. For example, if you travel to Laredo, Texas, you will find a border patrol office equipped with vehicles and personnel to monitor all border activities. In fact, according to a recent subcommittee on homeland security, the 2017 budget for U.S. Customs and Border Protection (CBP) is $13.9 billion, which is an increase of $686 million from 2016. These vehicles, human capital and surveillance are real costs to our nation as we continually try to decrease the number of immigrants and informal goods crossing into our country.
   So while there may be a business case to be made for creating a physical wall to replace some of the virtual wall, we would have to look carefully at the return on investment for each section of the border. There are certainly some sections which are hard to maintain “virtually,” but we will need to carefully examine where it makes the most financial sense to either build a physical wall or to continue our current patrolling methods.
   While safety and economic stability are important, fundamentally destabilizing Mexico does not meet our objectives as a country. Free trade is the key to continued economic growth in North America. If we can make strong strides in Mexico by investing in its infrastructure and helping to create successful trade, we insulate ourselves economically and create our own successful North American trading bloc.

   Enhancing Trade with Mexico: The Path to a Successful Economic Bloc. Mexico is on the path to becoming a fully modernized nation. According to the International Monetary Fund, Mexico has the 11th-highest GDP in the world based on purchasing power parity. If the United States continues to help Mexico on this path, it could become one of the top economies in the world – assisting us in creating a solid, successful economic bloc.
   This would help us be on a closer even plane with the European economic bloc, which has been able to accomplish much more than North America in terms of free trade. The European Union (EU) allows transportation, people and jobs to flow freely across borders. Although the EU has certainly had its problems, there is an enhanced level of sophistication in the EU trade bloc, and it is a top, respected competitor in innovation, design and sales merchandise across the world.
   If North America could mirror this type of free trade model, more consumers would be freely purchasing goods and stimulating the U.S. economy. Ending NAFTA would dismantle the progress we’ve already made toward this type of free trade system. And for the United States, the more stability within Mexico, the better.
   With a stable economy, more Mexican people will stay and work within their home country – increasing trade and the buying power on the part of Mexicans to consume U.S. goods. We're not going to be able to sell our goods to a nation with crumbling infrastructure, devalued currency and a lack of jobs. Let’s not be shortsighted. Let’s keep developing a North America that supports trade and builds a strong infrastructure and economy for Mexico, Canada and the United States.
Troy Ryley  Troy Ryley is senior vice president, Transplace Mexico.