Trade Relation Issues Between United States and Mexico Term Paper

Introduction

On the issue of trade relations between United States and Mexico has been affected by issues such as border industrialization, unlawful and undocumented immigration from Mexico, unlawful drug and firearms smuggling, with respect to economic development and environmental problems, cross-border governmental cooperation between the US and Mexico (Ronen Shamir 2005).

The trade relations between United States and Mexico can be analyzed and measured on the basis of exponential growth and development that the two nations have had. However, it’s clear that the United States is superior in terms of political will power, powerful or sustainable economies and vast natural resources among other determinants compared to Mexico which is a developing nation that is trying as much as possible to sustain its economy.

Moreover, it’s empirical to note that there have been certain key elements that have affected trade between the two nations in a huge magnitude. These key elements have been the determining reasons that trade relations between the two nations have either been effected positively or negatively. These key factors include:

• Introduction of North American Free Trade Agreement (NAFTA) in 1994.
• Economies variations.
• Economic policies.
• Illegal business activities in Mexico – drugs and firearms.

And many other factors that affect trade relations, economic growth and improvement of the United States and Mexico.

Introduction of North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement (NAFTA) was introduced in 1994 with the aim of overseeing, improving and regulating the trade between United States and Mexico. This was a great and encouraging initiative by the two nations for coming in a common agenda of improving its trade relations. However, since introduction of NAFTA there have some issues that have cropped up leaving the agreement with a lot to be desired. While formulating NAFTA these two nations had this in mind:

• To increase trade between the two nations
• To improve and increase foreign investment productivity
• To provide a more steady macroeconomic atmosphere for business between the two nations (Eduardo Zepeda, Timothy A. Wise, and Kevin P. Gallagher 2009).

NAFTA’s Success

North American Free Trade Agreement (NAFTA) has had a positive impact on trade between the two nations since it has brought about increase of trade between the two nations thus it succeeded in expanding trade (M. Angeles Villarreal 2005).

Mexico’s export from 1993 to 2007 increased by 311%, while non – oil exports also increased by 283%. Ideally the trade relations were quite encouraging for exports to the United States were equally up by the same rate. Growth in the manufacturing sector also was felt since it increased from 43% in 1990 to 77% in 2007, while the agricultural sector too had a huge growth¹.

The macroeconomic sector in Mexico has had a significant stability since Mexico employed rigid monetary and fiscal policies.

The policies employed by NAFTA were exemplary since inflation was brought lower than 5% from above 80% in the 1980’s. From the benefits of NAFTA national financial plan shortage have been low precisely, 1% of the GDP which has stirred up Mexico achieving reduction of international debt to a more sustainable point.

The foreign direct investment has had improvements for it had significant growth from 1992 to 2006 that was mostly realized by investment freed up under the implementation of NAFTA, where the eventuality of these effects of around 58% came from the United States².

Significant growth in manufacturing sector enhanced trade between the United Sates and Mexico since it gave Mexico the ability to compete internationally specifically with its counterpart United States. This has made noteworthy rise in productivity in Mexico due to the goals of trade liberalization of the two states hence growth has been noted on the Mexican economy.

NAFTA’S Flaw

Though NAFTA was successful on trade expansion it has been noted not to have addressed all the issues concerning development of gap separating Mexico and its two northern neighbors and thus the gap has widened.

Slow Mexico economy growth has been noted since its annual per capita growth was at a rate of 1.6% from 1992 to 2007. This has been on the lower side of the Mexican economy growth due to the fact that as from 1969 to 1979 the real capita growth averaged 3.5%. Contrary to successes aforementioned there have been low levels of foreign investments due to NAFTA’s great evidence in drawing foreign investment has not interpreted into an increase in overall investment rates in Mexico. This has been the key factor and instrument behind Mexico’s economic growth as opposed to the United States. Although the foreign direct investment translated an improvement and growth, the domestic investment was left behind such that the overall levels of investments that is, the domestic and foreign investments suffered at around 19% of the GDP. This is stumpy against Mexico’s standards in that the foreign direct investment before 1982 was around 24% of GDP hence its lower than 25% level what the economists recommend for actual and tangible economic vibrant growth³.

Foreign direct investment in Mexico failed to achieve results due to poor infrastructure and lack of credit that led to many firms going out of business due to heaviness from imports. Furthermore, some portions of the foreign direct investments precisely in services went into purchasing domestic firms instead of setting up new services that led into decrease in stock of capital. Additionally, foreign direct investment in manufacturing has been focusing on ‘production-sharing operations’ that involves taking some constituents, add some value and re-export the product again which leads to creation of inadequate spillovers (Eduardo Zepeda, Timothy A. Wise, and Kevin P. Gallagher 2009).

Due to macroeconomic fine-tuning ratified instrumented by NAFTA to lessen the economic shortfall, by using the guidelines in accordance to the free market repugnance to public involvement by the two nations, led to failure of public investment. Precisely, the rejection in public venture was not remunerated by an increase in private investment thus public venture was required to swarm in private venture for private capital (Will Wilkinson 2009).

Although much has been purported in assuming accomplishments in the area of macroeconomic stability, especially in decreasing inflation and external debt, there are other issues that could be considerably drawing back the aforesaid achievements. The rigid monetary policies engaged by Mexico could have narrowed inflation but at the same time slowed down the domestic economic growth of the nation. This is evident since these rigid monetary policies have led to an unrelenting overestimated currency, leading to complicatedness for manufacturers contending with other developing countries exporters and for that matter it has become more cumbersome for Mexico to compete with United States economically considering already United States a developed nation (M. Angeles Villarreal 2005).

The confidence over NAFTA’s control over increasingly United States inflows into Mexico would protect the nation from currency attacks was barely an oversight. This is due to the fact that the fiscal transformations fell short of intensifying the Mexican financial services sector, which remains scrawny, with banks loaning to private firms low and costly comparative to international standards (Eduardo Zepeda, Timothy A. Wise, and Kevin P. Gallagher 2009).

Mexico is extremely reliant on the United States as its export market nation, where all exports account for nearly 85% of its exports thus this leads to susceptibility of United States economy recession to Mexico⁴.

Therefore, due to this Mexico is getting high recession impact from United States and thus it has been noted a sharp decline of Mexico’s economy by about 7%⁵.

Due to slow economic growth and weak investment framework, employment growth has been poor contrary to NAFTA opening huge opportunities such as large improvement and increase in trade and foreign investments. Due to many Mexicans annually come into labor force, NAFTA has not been able to alleviate and sustain the issue of employment opportunities (M. Angeles Villarreal 2005). Due to low job market in Mexico, it has led to in surge of Mexican’s migrating to the United States for jobs as well as for better wages in comparison to their nation. It’s empirical to say that the leading cause amplifying the Mexico-United States migration is the bi-national wage gap that is the disparity amid what populace can expect to earn in the United States and what they can expect to earn in Mexico (M. Angeles Villarreal 2005).

These factors further affect the chances of movement by determining other potential benefits of international immigration, such as work-related position, working surroundings, and the prospects of job movement. NAFTA also left out the issue of immigration and thus has led to lack of proper documentation of Mexicans workers hence it’s been noted that undocumented Mexican workers jumped from 1 to 6 million in the last decade due to search of jobs and better wages in the United States as opposed to their nation⁶.

The NAFTA implementation did not organize eventualities such as market failures between the two nations e.g. the Mexican Peso crisis. NAFTA also failed to plan as well as strategize for success such as constructing new roads and border crossings for accumulation traffic in order to enhance trade relations between the two nations. Due to lack of realistic institutions in the United States, for instance, on the terror attack on September 11, 2001, instead of creating a universal reaction to terror, each country relapsed to its routine position, with the US acted independently by closing it borders and thus Mexico reacting on its normal way (Robert A. Pastor 2006).

Trade Disagreements since NAFTA’s Inception

Since the inception of NAFTA the road has not been easy for trade relations between United States and Mexico. There have been trade disagreements between the two states that have involved the admittance of Mexican trucks to the United States, the access of Mexican tuna and sugar to the US marketplace and access of the US sweeteners to the Mexican marketplace (Eduardo Zepeda, Timothy A. Wise, and Kevin P. Gallagher 2009).

In March 2009 the US Congressional action Omnibus Appropriations Acts, 2009 ceased the lead plan for Mexican trucks to function beyond 25 – mile border marketable region inside the United States which led to striking back of the Mexicans. Mexican government argued that this way was far too much and US was sort of performing a protection act and thus Mexico reacted by obliging over ninety United States agricultural and industrial products (Mark P. Sullivan and June S. Beittel 2009).

On the issue of sugar and high fructose corn syrup, there were some contending issues that were generated by the so called NAFTA. According to Mexico’s stand, the NAFTA agreement had allowed them to distribute net sugar surplus to the United States duty free a decision that United States opposed as the Mexican sugar shipments were to be limited. Mexico also had complaints for high fructose corn syrup sweeteners from the United States composed dumping and therefore, it obliged anti-dumping duties. This led to Mexico imposing tax of 20% on soft drinks made with corn syrup to alleviate the poor and weakening cane sugar industry regardless of United States protest⁷.

On the issue of Tuna the United States placed a restriction on the Mexican Tuna in 2000 under lightened up standards for the dolphin – safe sticker in agreement with the internationally agreed standards and United States governance approved in 1997 that advocated for unhurt discharge of dolphins from net (Mark P. Sullivan and June S. Beittel 2009).

In 2002 the United States and Mexico also had trade issues regarding agricultural products such as apples, rice, swine, beef and protection concerns on potatoes where the Mexico continued on anti-dumping duties in 2004. Subsequently Mexico banned beef imports from the United States after discovery of a cow infected with mad cow disease in 2003 in the Washington state (M. Angeles Villarreal 2005).

Economy variations and economic policies

Mexico had a closed and independent economy and its ties with foreign policy was at odds with the US until early 1980’s. Mexico has further adopted some political, economic and foreign policy reforms, opened its governance to trade and investments and also has tried in tackling the trade issues as well as economic issues of Mexico.

Although the United States economic relationship with Mexico has strengthened significantly over the period of time, much more has to be questioned. The mutual economic relationship brought about by NAFTA has a lot of challenges ahead to address in respect to Mexico’s slow economic growth, low employment opportunities, efficient and productive viable foreign direct investments among other issues. Due to lower cost suppliers from other nations such as India and China, it’s interpreted that, the North America trade integration is being shaken up after realization and implementation of NAFTA thus; Mexico in the long run is seen as the trade defeated nation due to the fact that its exports rely mostly on the United States market.

NAFTA’s trade policies are directly affected by the United States economic performance leading to a more disastrous and weakening Mexican economy. If integration would realize significant growth between the two nations, then there is need for more attention on addressing the difference in income levels of the two nations. Although the two nations are in closer propinquity, the economic point of United States is far better, stronger, and more enormous than its counterpart Mexico thus there is a wider gap in economic growth levels of the two nations.

As a result of NAFTA’s formation there were hopes that Mexico would improve and develop its current economic state for employment opportunities to the nation, but rather the economic growth was slow and did not increase appropriately and thus many are still in poverty. The policies instruments put in place also have to address efficiently in order to resolve income differences among the trading partners – the United States and Mexico. Although NAFTA has played a great economic role in Mexico, it has not been able to reduce the economic variations with the United States.

It’s a fact that illegal immigration won’t end soon so long as the income gap does not narrow since the gap between the wealthy and the poor is so high. Due to the economic differences and destitutions in Mexico it has resulted in Mexicans immigrating illegally to the United States for better jobs and wages. This has a negative effect on the Mexican’s economy since this may lead to brain-drain from their nation leading to a poor nation (Douglas S. Massey and Kristin E. Espinosa 1997). It’s evident that for millions of Mexicans, economic reorganization under the neoliberal administration of President Salinas brought destitution, unemployment, disregard, and growing economic marginalization and thus this has since ever caused more Mexicans opting for illegal immigration to US (Michael Clemens and Lant Pritchett 2008).

It has been realized that the real value of minimum wage has reduced 25% since NAFTA’s implementation this is due to not so many workers earn the minimum. The policy makers have used loosely minimum wage enforcement as an instrument in setting wage adjustments and worker’s benefits in order to stabilize the macro economy This has translated in declining employment opportunities as well as wages have been at stand still⁸.

NAFTA’s labor side agreement has not been effective in making sure that Mexico workers’ rights are valued and thus wages have been at a stand still hence weaker in labor’s negotiations power therefore, this interprets low employment opportunities (Douglas S. Massey and Kristin E. Espinosa 1997).

NAFTA has also been a key factor that has contributed to growing geographical inequality between Mexico’s southern and northern states. Growth has been observed on states along the United States border and particularly those with transportation infrastructure and or even industrial trade with the United States (Eduardo Zepeda, Timothy A. Wise, and Kevin P. Gallagher 2009). Alongside the northern border, particularly within vibrant metropolitan centers such as Nuevo Laredo, Tijuana, Monterrey, Mexicali, Ciudad Juarez, have brought about open trade and closer attachments with the United States thus, brought economic development and sustained high rates of growth (Robert A. Pastor 2006).

It’s observed that during the NAFTA’s period has come with a high environmental cost due to United States firm that have moved to Mexico have contributed on the pollution issue. This has therefore put Mexico under poor environment record mostly due to the deteriorating of the obligation to environmental protection in the post-NAFTA era (Eduardo Zepeda, Timothy A. Wise, and Kevin P. Gallagher 2009).

The environmental degradation is a factor is not hidden since 1985 the environmental costs which include urban and industrial pollution across sectors and natural resources dilapidation have averaged about 10% of the GDP annually⁹.

Illegal business activities in Mexico – drugs and firearms

There has been rise in brutality in Mexico in past years that is associated with trafficking in of illegal drugs and guns and thus efforts of the Mexican government to curb this menace has been very huge and challenging task.This in effect has pressured the two nations United States and Mexico in terms of their trade relations. It’s evident that since the menace has worsened, it has affected the southwestern United States and has come into point where it creates a justifiable national security issues for U.S policy makers (Ted G. Carpenter 2009). This carnage is already being felt on the southwestern United States and thus the US government has issued travel alerts for Americans traveling to Mexico; this has affected tourism negatively in areas with high hostility by tourism sector dropping down sharply (Ted G. Carpenter 2009).

Illicit activities in Mexico pose a great magnitude of trade improvement barriers since these activities hamper business developments. It has been observed that areas with high volatility of enmity and violence have made it in accessible for the United States tourists. This translates to Mexico loosing its revenue generated through tourism lost and thus it becomes more economic handcuffed.

The other effect of violence has led to strict measures and scrutiny of Mexican immigrating to the United States thus ending up in making their livelihoods harder and poor. Due to NAFTA’s implementation, southern states have been the most economically isolated thus rendering to illicit business activities. This leads to the northern parts of the Mexico nation more viable and developed leaving its southern counterpart poor and more so many engaging in the illicit businesses. This is the biggest challenge in the Mexican nation since as the United States and optimism northern Mexico states improve economically through mutual trade the southern states still lag behind. From this information it’s obviously that something should be done without wastage of time to address the geographical economic inequality in Mexico as well as its counterpart United States.

Conclusion

All in all the issue of US-Mexico relations has a lot of issues that need to be tackled and settled in order to improve the livelihoods of the two nations. It’s advisable the two nations to hold annual meetings and a North American Advisory Council should be formed to foresee all issues regarding trade and inter-relations (Robert A. Pastor 2006). Unlike other Commissions, the convention ought to be lean, self-governing, and advice-giving team comprising at least five eminent leaders from each of the nations in order to effectively articulate the issues. The commission should be given mandate in arranging the program with suggestions on North American transportation, the environment, and other related issues (Robert A. Pastor 2006).

The US and Mexico governments should further consider investing appropriately on significant strategically developed plans in order to improve the security and bring forth more economic benefits especially in reducing the Mexican income gap from the rich to the poor (Robert A. Pastor 2006). The Congress should further think of revising the immigration bill in order to set up a Commission to learn and bring forth justifiable choices for closing the income gap (Robert A. Pastor 2006).

Its important for the trade policies invetsed by these two nations address the issue of income variations between the two states. If more has been said to praise NAFTA as an economic growth instrument for Mexican and United States governments, yet Mexico is still slow and lagging behind in its economic growth agenda, poor wages to its workers, reduced employment opportunities, slow and unproductive foreign direct investments, then, more should be done to improve this. Its appropriate for proper trade mechanisms to be adopted to improve trade relations between the two states so as to give the Mexican nationalities a chance to improve their personal lives, livelihoods, reduce illicit business – drugs and firearms smuggling, reduce poverty, create more room for competitive employments and further to be more economic viable, productive and reliable in the years to come.

References List

Beittel S, June and Sullivan P, Mark. 2009, “Congressional Research Service: Mexico-U.S. Relations: Issues for Congress”.

Carpenter Ted, Galen, “Troubled neighbor Mexico’s Drug Violence Poses a Threat to the United States”, Policy Analysis No. 631 (2009).

Gallagher P, Kevin, Wise A, Timothy and Zepeda, Eduardo. 2009,”Policy Outlook: Rethinking Trade Policy for Development: Lessons from Mexico under NAFTA”.

Kristin E, Espinosa and Douglas S, Massey. 2007,” What’s Driving Mexico-U.S. Migration? A Theoretical, Empirical, and Policy Analysis”. Web.

Parrado A, Emilio, Massey S, Douglas and Durand, Jorge. 2007, “The New Era of Mexican Migration to the United States”. Web.

Pastor A, Robert. 2006,” U.S. House of Representatives Committee on International Relations Subcommittee on the Western Hemisphere: The U.S., Mexico, and North America”. Web.

Pritchett, Lant and Clemens, Michael. 2008, “Income per natural: Measuring development as if people mattered more than places”.

Shamir, Ronen. 2009. “Without Borders? Notes on Globalization as a Mobility Regime”, Vol. 23, No. 2.

Villarreal M, Angeles. 2005,” U.S.-Mexico Economic Relations: Trends, Issues, and Implications”. Web.

Wilkinson, Will, “Thinking clearly about Economic Inequality.”Policy Analysis No 640. 2009.

Footnotes

1. Eduardo, Zepeda, Timothy A, Wise, and Kevin P, Gallagher. 2009, “ Rethinking Trade Policy for Development: Lessons From Mexico Under NAFTA ”. Web.
2. Eduardo, Zepeda, Timothy A, Wise, and Kevin P, Gallagher. 2009, “ Rethinking Trade Policy for Development: Lessons From Mexico Under NAFTA ”. Web.
3. Eduardo, Zepeda, Timothy A, Wise, and Kevin P, Gallagher. 2009, “ Rethinking Trade Policy for Development: Lessons From Mexico Under NAFTA ”. Web.
4. Eduardo, Zepeda, Timothy A, Wise, and Kevin P, Gallagher. 2009, “ Rethinking Trade Policy for Development: Lessons From Mexico Under NAFTA ”. Web.
5. Villarreal M, Angeles. 2005,” U.S.-Mexico Economic Relations: Trends, Issues, and Implications”. Web.
6. Parrado A, Emilio, Massey S, Douglas and Durand, Jorge. 2007, “The New Era of Mexican Migration to the United States”,1999. Web.
7. Beittel S, June and Sullivan P, Mark. 2009, “Congressional Research Service: Mexico-U.S. Relations: Issues for Congress”, (2009). Web.
8. Eduardo, Zepeda, Timothy A, Wise, and Kevin P, Gallagher. 2009, “ Rethinking Trade Policy for Development: Lessons From Mexico Under NAFTA ”. Web.
9. Eduardo, Zepeda, Timothy A, Wise, and Kevin P, Gallagher. 2009, “ Rethinking Trade Policy for Development: Lessons From Mexico Under NAFTA ”. Web.