¡Mexico Again!

Following up on the whole NAFTA thing, I thought I’d collect a few summaries and charts that would help explain the consensus on NAFTA a little better. First off, here’s a survey of economists:

This is the mainstream view of NAFTA. There are some lefty economists who would disagree with this, for the same reason they dislike most trade agreements: the benefits tend to skew to high-income workers while displacing some number of low-income workers. But economic elites and national leaders tend to like trade agreements a lot. Here’s the Economist on the 20th anniversary of NAFTA:

For its first six years the pact’s success was remarkable. Cross-border investment ballooned. Rapid growth led to the three countries’ share of global production hitting a peak of 36% in 2001. But the progress stalled. Fears of terrorism in the United States after September 11th 2001 led to a security clampdown on its borders that still hampers trade today (the drug war in Mexico has not helped). Even more destabilising, after China joined the World Trade Organisation in 2001, American firms in Mexico upped sticks and headed across the Pacific. Trade within North America eventually started to grow again; but global trade—principally with China—mushroomed.

This is an important point: after 2000, when China joined the WTO, it gets very hard to analyze the impact of NAFTA. The trade data simply becomes overwhelmed by the Chinese tidal wave in both manufacturing and agriculture. Nonetheless, by 2017, when NAFTA was two decades old and the Chinese tsunami had taken its full effect, mainstream American economic opinion continued to be moderately positive toward NAFTA.

But what about Mexico? Has NAFTA been good for them? There’s no simple survey of Mexican economists that I’m aware of, but here’s a 2006 survey taken in Mexico that asked generally about international trade:

So a decade after NAFTA, Mexican public opinion toward trade was still generally favorable and elite opinion was extremely favorable. And what about economic researchers? Do they think NAFTA was good for the Mexican economy? Here’s the generally reliable Congressional Research Service:

A number of studies have found that NAFTA has brought economic and social benefits to the Mexican economy as a whole, but that the benefits have not been evenly distributed throughout the country….positive impact on Mexican productivity….positive effect on stimulating the productivity of Mexican plants….economic effects have found that the net overall effects on the Mexican economy tended to be positive but modest….NAFTA helped Mexico get closer to the levels of development in the United States and Canada.

Other studies suggest that NAFTA has been disappointing in that it failed to significantly improve the Mexican economy or lower income disparities between Mexico and its northern neighbors.

….Many critics of NAFTA say that the agreement led to a large number of job losses in Mexican agriculture, especially in the corn sector. One study estimates these losses to have been over 1 million lost jobs in corn production between 1991 and 2000. However, while some of the changes in the agricultural sector are a direct result of NAFTA…many of the changes can be attributed to Mexico’s unilateral agricultural reform measures in the 1980s and early 1990s….These reforms coincided with NAFTA negotiations and continued beyond the implementation of NAFTA in 1994. The unilateral reforms in the agricultural sector make it difficult to separate those effects from the effects of NAFTA.

Ah, the “corn sector,” source of a million arguments. A lot of people continue to believe that “NAFTA killed Mexico’s rural corn farmers,” but there’s a big problem with this: Mexico initiated sweeping economic reforms that took effect from the late 80s to the late 90s, and NAFTA came right in the middle. Here’s the basic data, courtesy of the USDA:

This is raw data, and you can read it a lot of different ways. But a few things are clear:

  • Mexican corn production began to increase in the late 80s and has continued to increase ever since.
  • After NAFTA, US corn exports to Mexico increased.
  • This produced a brief pause in Mexican corn production, which was flat between 1995 and 2000.
  • It also reduced the price of corn by about a quarter.
  • However, between 1994 and 2017, Mexican corn production has increased from 18 to 26 million tonnes. That’s a rise of 42 percent.

All of these things taken together unquestionably had a big effect on Mexican corn production, especially on rural farmers with low efficiencies. But the biggest point of pain for rural farming communities was not NAFTA. More likely, it was the Mexican government’s decision to reduce price supports for agricultural commodities like corn starting in the late 80s, well before NAFTA was signed:

The bottom line is that Mexico’s rural corn farmers, especially in the poorer south, did have a hard time. But this was due to a whole host of things, and NAFTA was only part of it:

  • Like most developing countries, agricultural production in Mexico has for many decades been shifting to large-scale farms and capital-intensive food processing, which puts pressure on small-scale farms and household farmers.
  • Economic reforms reduced the price of corn, and NAFTA reduced the price further.
  • Access to credit for small farmers became harder after government subsidies and guarantees were removed.

And now for the key question: was NAFTA responsible for the huge immigration flows from Mexico into the United States during the 90s and aughts? Probably not. Here’s the conclusion of a Carnegie report from 2004:

NAFTA does not appear to be the culprit in this acceleration of rural out-migration, however. Taylor and Dyer found no indication that NAFTA created any sort of “break point” in the growth of migration from rural areas. Rather, migration from rural Mexico to the United States had been accelerating well before the onset of NAFTA, and the trend continued afterward.

….Even as agricultural prices dropped and Mexico’s trade deficit in agricultural goods with the United States widened after NAFTA, Mexico’s agricultural GDP increased. The gains in the value of Mexican agriculture were accompanied, however, by a seemingly paradoxical decline in employment in the Mexican agricultural sector, from 8.1 million jobs in 1993 to 6.8 million in 2001. A number of factors besides NAFTA were at work, however.

The first, and one that is often overlooked, is the natural, perhaps inevitable, process of rural-to-urban movement that all countries experience as their economies advance. The share of agricultural workers as a proportion of Mexico’s workforce has declined steadily, from over 50 percent in 1960, to 36 percent in 1980, to less than 25 percent and falling since 1995. The second factor is the continued reform of Mexican agricultural policy. Reforms of the ejido system of landownership that began in 1992 have allowed land sales and rentals and have been accompanied by cuts and changes in the structure of agricultural subsidies. Both changes have encouraged increased productivity and production, but not always in ways that have resulted in greater agricultural employment or have encouraged rural people to stay put.

Thus, NAFTA has played only a minor role in the continuing acceleration of rural outmigration during the decade since its enactment. The choice of whether to migrate within Mexico or to the United States, however, has been shaped by the larger and more structural general migration forces outlined in this essay, and by the unavailability and low quality of jobs in Mexico’s cities.

This got a little long. Sorry. But too many people see that (a) US corn exports to Mexico spiked after NAFTA and (b) lots of rural farmers pulled up stakes at around the same time and emigrated to El Norte, and conclude that (c) Bill Clinton and big, bad American corn wrecked rural Mexico.

It’s a good story, and it even has a kernel of truth to it. But that’s all. The real story is more boring, a combination of globalization, economic reforms, and a booming American economy that started long before NAFTA and continued long after it.