NAFTA Review: How the US-Mexico partnership benefits both
If Mexico and the US were once perceived as competitors, there is no doubt they are now closely integrated regional partners, thanks at least in part, US-Mexico partnership that resulted from the NAFTA.
In the debate that arose over the implementation of NAFTA two decades ago, there was some concern that the US would be on the losing end of the deal. At that time, many in the US viewed Mexico as a rival in the global marketplace, and that creating a US-Mexico partnership through the NAFTA was tantamount to conceding the match. What actually arose out of the new agreement was something far better preferable to a rivalry.
In recent years, it has become increasingly evident that the US and Mexico are in the same figurative boat. Each experience essentially the same growth and recession cycle due to the intimate connection that the two countries’ economies share. What was seen by some as a tragic mistake is now proving to be a strong mechanism for competitive advantage and mutual benefit in the global economy, as all three NAFTA nations – but particularly Mexico and the US – work together to compete in this new age of regionalism.
Consider the following:
- According to the US Chamber of Commerce, more than six million US jobs depend on US-Mexico trade.
- Nearly half of all US states sell goods to Mexico in excess of $1 billion USD annually.
- Mexican companies heavily invest in or directly own some of the most well-known brands in the US, such as Sara Lee, Entenmann’s, Saks Fifth Avenue, and the New York Times.
- Forty-percent of the value of US imports from Mexico comes from the US. Expressed in another manner, 40 cents of every dollar the US spends on Mexican goods goes to US industry. Compare this to 4% for Chinese goods.
- Automobiles manufactured in North America have their parts cross the border approximately eight times during the manufacturing process, reflecting a high level of vertical specialization and partnership.
- Oil prices are lowered by increased oil trade within North America.
Room for Improvement
Since the near collapse of the American automotive industry in 2008, the US and Mexican economies have shown strong resilience, resurging over 70% and 50% respectively. What is surprising is that this joint recovery has largely been unplanned. The two economies have overcome obstacles almost spontaneously. With an improvement in only a few key areas and a more proactive role by policymakers, this joint resilience might be strengthened exponentially.
To increase the benefits of this US-Mexico partnership begun by the NAFTA, areas for improvement include:
- Strengthening the rule of law in Mexico
- Revamping immigration policy in the US
- Improving productivity in Mexico’s energy sector