The United States Mexico Canada Agreement (USMCA) is the talk of the cross-border logistics world. How will USMCA impact the regional economy? How will it affect individual industries? Is the USMCA that different from the North American Free Trade Agreement? Is now a good time to do a post-mortem analysis on NAFTA itself?
We’ve written about USMCA and what it means for cross-border freight, but as the July 1 implementation date approaches, we decided to take a step back and look at the history of trade between the U.S. and Mexico We enlisted the expertise of Dr. Justin Castro, Associate Professor and Chair of the Department of History at Arkansas University; Dr. Kevin Chrisman, a historian of 20th century Mexican business and culture and a cross-border solutions consultant at Forager; and Dr. James A Garza, Professor of History and Director of Ethnic Studies at University of Nebraska-Lincoln. They dove into pre-NAFTA trade relations, the economic turbulence and trends that led to NAFTA, and the one sentence they would use to describe this controversial and impactful trade agreement (and by one sentence, we mean one paragraph- turns out you can’t put a world limit on expertise).
NAFTA is not the “first” free-trade agreement.
While NAFTA was a landmark agreement in trade relations, it’s not the first free-trade policy between the United States and Mexico. Mexico has always been connected to the global economy, from the early days of silver mining and trade in the 16th century to today. International trade relationships, and cultural and economic exchange with the United States in particular, increased during the dictatorship-presidency of Porfirio Díaz (1876-1910). Facilitated by reform laws, infrastructure projects, and better financing, foreign countries began to seek new partnerships with Mexican businesses and investors.
“In some ways, NAFTA was old hat. It was building on older trends that were there before. It just happened to be a more encompassing and broader trade agreements that existed before,” said Dr. Castro.
Cross-border trade has always been important to the U.S. and Mexico’s economy, even when industries were nationalized.
The global economic strategy put in place by the Díaz administration shifted in the 1930s with the nationalization of Mexico’s oil industry. In 1938, President Lázaro Cárdenas (1934-1940) signed the Mexican Expropriation of Foreign Oil and created the Petróleos Mexicanos (PEMEX), the state-owned Mexican oil company. While foreign oil companies were barred from operating in Mexico, the infrastructure and practice of cross-border trade was set.
“Diaz’s administration built the rail networks in the late 19th century and those networks connected deep into the United States. So really, the trade’s always been there,” explained Garza. “And then in the 1930s when the roads were paved, the Laredo road to Mexico City was one of the first ones paved with asphalt. That trade was very important for Mexico.”
For Mexico, NAFTA was (in part) a strategy to stabilize the Mexican economy after the collapse of the oil industry in the early 1980s.
There were a whole lot of other economic policies between 1930 and 1980, but generally those decades were marked by an economic tug of war between nationalization and globalization. In the late 1970s and early 1980s however, Mexico experienced extreme economic turbulence. An oil boom from 1977 to 1981 was followed by a disastrous crash and left the country bankrupt. The value of the peso plummeted, investment dried up, and the price of basic goods and services skyrocketed. Mexican economists viewed a larger-scale trade agreement as a key piece of recovery. It could boost the value of the peso, increase investor confidence, and stabilize the economy. In 1988, Canada and the U.S. had signed the Canada- United States Free Trade Agreements (FTA) and soon after, President Carlos Salinas de Gortari proposed a similar agreement with the United States. Eventually, these negotiations shifted from bilateral to regional, and from that, NAFTA was born.
NAFTA (plus other variables) benefited member economies. It was a mixed bag for other facets of society.
It’s been over 30 years since NAFTA was signed, and economists generally agree it did what it set out to do: benefit North American economies. Regional trade grew, consumer prices dropped, and cross-border investment surged. However, as Dr. Chrisman explained, “good” and “bad” doesn’t really scratch the surface of NAFTA.
“One of the first things that happened with the implementation of NAFTA is you saw a flood of industrial and processed food into Mexico. You also saw a flood of U.S. agribusiness, so Mexican farmers could no longer compete with American companies, and this also made it harder for Mexicans to eat more traditional foods.” Chrisman went on to explain how this shift in economic policy not only impacted high level economic indicators, but also changed Mexican society. NAFTA disrupted traditional food practices, contributed to migration and immigration, and changed the availability of jobs. But, at the same time, experts still can’t connect all those changes to NAFTA.
“A lot of job losses have been attributed to NAFTA, but those job losses could probably be blamed on other factors. Automation, and China’s entry into the global economy, for example,” said Garza.
Good, bad, and somewhere in the middle- trade agreements are here to stay. Now, NAFTA is making way for the USMCA.
USMCA will update NAFTA in a few key ways. Among other updates, the USMCA adds regulations around digital copyright law and data sharing, revises requirements for zero tariffs on automobiles, and adjusts laws surrounding labor conditions in Mexico. But beyond that, all three historians seemed to agree that not a lot has shifted and it’s unclear what’s next.
“It’s kind of nebulous,” said Chrisman. “There have been some other changes in language. That may mean stronger protections for steel and automotive, and maybe even dairy. It may be more profitable and advantageous for those industries to ship across the border, it’s hard to tell.”
The three Cs: complex, complicated, change
So how do you sum up three decades of a massively complex economic policy that spanned multiple administrations and can safely be labeled as one of the most contentious trade agreements of the 21st century? Garza put it succinctly with, “NAFTA…it’s complicated.”
For Chrisman, NAFTA means one word (that turned into a paragraph): change. “It’s widespread change, across political, economic, and social divides. Not only did NAFTA entrench the territorial border with Mexico, but also created an economic border as well. That meant changes in borderland culture, changes in food, changes in jobs, and changes in the way that freight moves.”
The USMCA will bring more change, and when it’s reviewed in 6 years, more change will come again. The constant though? Trade. Whether it’s 1860 or 1960 or 2060, the United States and Mexico have been and will remain linked.
As long as there’s a border, we’ll be talking about it, thinking about it, and moving freight across it.