Mexican trade is not what it used to be. When its overhanging neighbours to the north began forging freer trade between themselves in the 1980s, Mexico was still seen as a closed economy, more concerned with its petroleum exports than full integration with the United States and Canada.
The difference between then and now is night and day.
Now, with the large majority of its exports being manufactured goods, “it has become a manufacturing powerhouse,” said Duncan Wood, director of the Mexico Institute at the Wilson Center in Washington, D.C.
The change in Mexico cannot be overemphasized. “The first thing to remember about the Mexican economy is that it has gone through an extraordinary transformation over the last 30 years, from being a commodity-exporting nation to being a country that now exports more manufactured goods than the rest of Latin America combined,” Dr. Wood said.
“That’s an extraordinary transformation. Mexico has gone from being one of the most closed markets in the world, to being the country that has free-trade deals with more countries than any other. Mexico has become the champion of trade,” he said.
Since the North American free-trade agreement in 1994 and Mexico’s embrace of free trade – not just with Canada and the United States, but with the world – the country has wound up changing too much and doing too well, at least in the eyes of the Trump administration.
It has also become a country that defines itself by international trade and its deep economic integration with the United States and Canada. But this not only about providing comparatively cheap Mexican labour. That’s not enough given China and other countries with even cheaper labour. The argument is that Mexico needs to be more than simply a centre of cheap labour.
So, Mexico is heading into another phase of change on top of the change it has already gone through. Trade gave Mexico a stable footing to build legal frameworks and broader economic policies, yet Mexican policy makers also realize its manufacturing sector will be hurt by the kind of automation and industry disruptions that the United States and Canada have already weathered.
In short, Mexico is in a transition phase, too, as it looks to modernize NAFTA during current trade talks. And that’s something rarely acknowledged or seemingly rarely understood in comments from the White House, which merely repeats the accusation of Mexico siphoning off jobs.
“What the Mexican negotiating team for NAFTA took on board from the very beginning is that this is an opportunity really to modernize the NAFTA in ways that keep Mexico’s competitiveness as a priority, but more importantly, to bring Mexico into the modern global economy, in a way that the existing NAFTA agreement didn’t,” he said.
However, he emphasized that Mexico does not see NAFTA as a zero-sum contest, but as a mutual gain for all three countries, given how integrated the economies are.
“The really interesting thing I would say about the last decade, in particular, is that a perspective has prevailed in Mexico that Mexican competitiveness actually depends upon the North American manufacturing platform, and that the United States depends on Mexico and on Canada as well – and Canada on Mexico and the United States.
“The reason why is because of the way in which production has been integrated across the region,” Dr. Wood said. “And by lowering the costs of certain parts of the production process in Mexico, partly because of lower labour costs, it enables U.S. and Canadian firms to maintain their national, regional and international competitiveness.”
Mexican policy makers have seen NAFTA very much as a foundation on which to build its economic policies based on the principles laid out in the agreement. NAFTA was accompanied in Mexico by broad regulatory reform, in areas such as industrial property and competition law, along with significant amendments to copyright law, technical standards and other trade legalities.
“That is not to say that everyone is agreement,” said Hugo Perezcano, deputy director, economic law at the Centre for International Governance Innovation in Waterloo, Ont., who was also on the team of trade negotiators for the original NAFTA deal.
NAFTA faced pockets of opposition in Mexico, as it still does now, from those questioning the degree of integration. Nevertheless, there was broad support in Mexico for the Trans-Pacific Partnership (or TPP, and its 2018 revised version known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership). “In many ways, it has been characterized as the modernization of the NAFTA,” Mr. Perezcano said.
“When Trump said, ‘We are going to renegotiate the NAFTA,’ the first reaction from Mexico and I believe Canada too was, ‘We just did that in TPP,’” he said, but “that was not satisfactory to the U.S. and Trump.” (The United States is not a signatory of the revised TPP.)
He argued, however, that it is a mistake to see Mexico’s embrace of free trade too much in terms of bowing to previous U.S. pressures to liberalize. In Mexico, “it [NAFTA] was viewed more for internal purposes, to provide a strong platform for its economy for Mexico’s own sake, rather than as a benefit to the United States. In fact, Mexico was the one who approached the United States and said ‘We want a free-trade agreement.’ The original proponent of a free-trade agreement was Mexico. It was not the U.S.
“I also think that Mexico has always acknowledged that NAFTA can be improved on. There were certain sectors that needed to be liberalized. The energy sector is the obvious suspect. It has now been liberalized, in my view. It could still be further liberalized. The telecommunication sector there as well,” Mr. Perezcano said.
And as erratic threats of sanctions continue from the White House (let alone antagonism about the U.S.-Mexican border), Mexico is not immune to nationalism which is rising in current presidential campaign, with populist candidate Andrés Manuel López Obrador, for instance, talking about Mexican industry producing more for Mexican consumers, rather than for the world.
“This is a thinly disguised statement of nationalism, which is that we’re going to produce more food here at home. We’re going to produce more of the consumer goods that we consume. We’re going to produce more petroleum. We’re going to produce more petroleum products, gasoline. Why are we importing from other countries?’ ” said the Wilson Center’s Dr. Wood.
“And so there is a resonance, an echo of what’s already happened in the United States. And that has a resonance in certain segments of the population, even though Mexicans overwhelmingly support free trade,” he said.