The Truth About NAFTA Is Clouded By Misunderstanding
The North American Free Trade Agreement (NAFTA) was enacted January 1st, 1994 between the United States, Canada and Mexico creating the largest free trade zone in the world. It is by far the most important piece of trade legislation ever passed by Congress. It is also the most misunderstood. Traveling to Mexico City prior to NAFTA was a completely different experience than today. The Metropolitan Cathedral and Zocalo (central plaza) built over the ruins of Montezuma’s Aztec Templo Mayor and the grand boulevard of Paseo de la Reforma, its fountains and monuments beautifully colored with a multitude of flowers belied the dull, dismal veracity of one of the largest cities in the world. Despite the grandeur of another era, a sullen emptiness permeated the thin, polluted air.
It was quickly apparent that this was not a city of entrepreneurial energy. It takes only a few short moments when arriving in a country to determine whether it is “open for business.” Mexico was in a thick cocoon, self spun and nearly impregnable. This was a country dominated by an oligarchy left behind by the Spanish, reflecting Spain’s long-held devotion to wealthy officials and connected institutions.
Before NAFTA there were few importers of American products. Most American exporters had more customers in tiny Puerto Rico than Mexico. Mexico proudly posted a “No Entry” sign at the border, imposing import duties exceeding 40% on American products, coupled with endless bureaucracy and barriers. The banking system was rife with cronyism that sufficiently snuffed out any sort of entrepreneurialism. The oligarchy monopolized the financial institutions, essentially freezing out foreign competition. Banks collected deposits to finance and subsidize the projects and investments of their aristocratic owners. They rarely loaned money to those outside the ruling elite.
Ordinary Mexicans trapped in a downward spiral frequently saw their life savings slowly and sometimes rapidly disappear through the devaluation and depreciation of the Mexican Peso. The oligarchy increased their wealth by investing in monopolized industries and foreign assets. The result has always been the same; the rich get richer and the rest die poor.
Each October over the past five years our company hosts a gala dinner for our Mexican customers at the Hacienda de los Morales in Mexico City. The Hacienda de los Morales was part of the original land grant bequest to Hernan Cortez in 1526 by the King of Spain. It was initially intended by the Spanish Conquistadors to be a gargantuan silk worm enterprise to replace trade with volatile China. Silk at the time was one of the worlds most sought after commodities. “Morales” derives its name from the “matas de mora” berry tree that was abundantly planted to nourish silk worms and provide sites for the worms to lay its larvae. Our Mexican clients arrive to the old colonial building impeccably dressed, in good cheer and always respectful. It is an evening of flowing tequila and sangria, great food and bellowing mariachis.
I am gratified to witness how favorably Mexicans respond to doing business with Americans. The rhetoric of our media paints a picture of discord at all levels. This could not be further from the truth. Out of the 130 countries I do business, there is no more enthusiastic reception for our products than Mexico.
Throughout the evening I listen to stories of growth and success… of new and expanding opportunities for American products being sold to every corner of the country.
The best thing, however, is to see young entrepreneurs excited about the future. Each year there are an increasing number of entrepreneurial endeavors being launched and nurtured. This level of activity was impossible before NAFTA. It brings light and hope to all of us.
The benefits of NAFTA have been consolidating. Since 2000 our deficit on manufactured goods and agricultural products with Canada and Mexico (our first and third largest trading partners respectively) has grown just $3.5 billion. Compare this to China over the same period where our deficit has grown $173 billion or fifty times greater on less than half the volume of trade. What the anti-NAFTA advocates have been hiding or are not smart enough to realize is the increase in our NAFTA deficit since 2000 is directly tied to U.S. imports of oil and gas from Canada and Mexico. Canada is our largest supplier of crude oil whereas Mexico is neck-and-neck with Saudi Arabia. Our staggering trade deficit in oil and gas is an energy policy problem, not a free trade problem.
With an open market, playing by established rules, American exporters excel. This is still a fragile process that must be protected. American businesses have provided Mexican entrepreneurs alternatives to the oligarchy and they have responded with overwhelming support for American goods and services. The largest bank and retailer in Mexico today is American owned. American companies play important roles across the Mexican economy. American investment and entrepreneurial zeal has been the genesis of a new Mexican revolution that is creating millions of jobs on both sides of the border.
The Democratic political elite avow they are going to “fix” the evils of NAFTA or “opt out”. Astonishingly this is the same rhetoric the ultra-left wing Mexican presidential candidate Andres Manuel Lopez-Obrador used when discussing NAFTA during the 2006 Mexican election. He came within a hair of winning. Lopez-Obrador openly campaigned for taking Mexico out of NAFTA and aligning it closer with Venezuelan dictator Hugo Chavez and other radical leftist Latin American governments. This would have been a disaster for Mexico, the United States and the region.
Now Senator Obama, Democratic members of Congress and their labor union allies are clamoring for the same thing. Do not be fooled. We must all know the truth about NAFTA. Mexico is “Open for Business” with U.S. exporters, and NAFTA is the key to success.