The Canada and USA Bi-lateral Free Trade Agreement was implemented in 1990.
At that time I was the Program Manager for a global logistics re-engineering effort at Unisys. This was a first-of-its kind Logistics System (people, process and enabling technology) seamlessly integrating manufacturing plants and distribution centers located in five countries – including the United States and Canada – on three continents.
The system tied every component (by “country of origin”) plus all labor added at every level of the manufacturing process directly to the unique (serial numbered) computer peripheral finished product.
The granular ability to track parts and tie them, across the global supply chain, to the individual worker who had handled them led to an agreement with the US Customs Service to provide entry documents electronically to the US Customs Service for pre- approval.
The team quickly created electronic entry documents to satisfy the new Canadian customs requirements – making Unisys an early beneficiary of the agreement.
After some initial hesitance by the Canadian people – who feared becoming a defacto 51st state – free trade between the USA and Canada has worked very well — accelerating negotiations for a tri-lateral North American Free Trade Agreement (NAFTA) — signed into law by Bill Clinton in 1993.
Why the Assumptions of NAFTA Failed at our Southern Border
NAFTA has not worked as well with Mexico. During negotiations, many acknowledged the challenges of integrating two “developed” economies with a third that was still “developing”. But negotiators underestimated those challenges.
The US government expected that free trade would expand economic opportunity in Mexico. Expanded opportunity, they argued, would reduce the flow of illegal immigrants seeking employment in the United States.
The hopes for a broader improvement in the economic lives of “average” Mexicans have not been realized.
- The Mexican public education system did not improve as quickly or as substantively as had been expected – hindering the expansion of the middle class. http://digital.library.unt.edu/ark:/67531/metadc505413/?q=The%20North%20American%20Free%20Trade%20Agreement%20April%202015
- Small, subsistence farmers lost their tariff protections against cheaper American agricultural products. Many were forced off the land – creating increased social unrest – and accelerating illegal immigration to the United States.
- Illegal immigrants still send $20 billion in untaxed (USA) wages annually – the only income for their families in Mexico. That’s more than Mexico earns from its oil industry! http://thehill.com/homenews/administration/228687-obama-presses-mexico-to-help-stop-illegal-immigration
NAFTA and US Jobs
Trade between the United States and Mexico grew exponentially under NAFTA. But as more raw materials moved south to be returned as manufactured goods — the historic USA trade surplus became a persistent 25% trade deficit. https://www.census.gov/foreign-trade/statistics/highlights/topcurmon.html
The deficit will continue to grow as Mexico aggressively imports American manufacturing jobs. http://www.reimagineamerica.org/saving-us-economy-starts-now-keep-oreo-cookies-in-chicago/
But not all job-shifting by US manufacturers to Mexico is negative for American workers.
The “cross border supply chain” has the potential to strengthen employment across North America.
The Ford Solution
Made-in-America is central to Ford Motor’s brand strategy.
When they announced the development of a 2018 manufacturing line in Mexico to build low margin Ford Focus hybrids – they simultaneously announced the existing Michigan plant will be upgraded to produce high priced SUVs and trucks.
The $8/hr jobs go to Mexico to preserve and increase $60/hr jobs in Michigan.
Bombardier – the Canadian airplane manufacturer makes a similar argument — its Mexican fuselage plant results in increased employment in the United States and Canada. http://www.economist.com/news/briefing/21592631-two-decades-ago-north-american-free-trade-agreement-got-flying-start-then-it
US/Canadian Free Trade Suggests a Template
Auto manufacturing on both sides of our northern border increased as a result of liberalized Direct Foreign Investment (FDI) regulations in Canada.
It created a flourishing cross border consumer economy with Canadian “day trippers” flocking to US shopping centers to buy attractively priced merchandise.
The US market for Canadian energy products and precious metals increased as a result of lower costs and ease of transport.
Hollywood studios have taken advantage of the lower production costs in Canada to develop significant satellite operations without fear of intellectual piracy.
USA/Canadian imports and exports tend to balance each other out – resulting in real GDP growth in both countries.
Canada is, also, our most reliable ally. https://www.washingtonpost.com/news/checkpoint/wp/2015/03/11/canadas-highway-of-heroes-the-patriotic-tradition-lives-on-after-afghanistan/
Building a Beneficial US/Mexico Relationship
A mutually beneficial trade relationship with Mexico is entirely possible – a relationship that looks more like our Canadian trading relationship.
More manufacturing jobs are an opportunity to expand the Mexican middle class but not all of those jobs have to come at the expense of American workers.
Rising factory wages in China create an opportunity for Mexico to compete globally to manufacture products destined for North American consumers.
To capitalize on this opportunity, Mexico must rapidly improve public education. The US can help through the Peace Corps, Teach America and other non-governmental organizations.
Build a more Efficient Cross Border Supply Chain
Further, strengthening the North American supply chain so that raw materials, sub-assemblies, and finished goods can move smoothly, safely, rapidly and legally across our southern border will require better highway and rail transport from the Mexican interior.
Joint investment in developing infrastructure – through the Inter-American Development Bank and cross border investment (http://www.marketwatch.com/story/warren-buffett-and-bill-gates-like-railroads-and-you-should-too-2015-09-17) — will create skilled and unskilled labor jobs in Mexico – drawing more economic migrants back to Mexico from the US while growing GDP on both sides of the border.
Growing trilateral GDP was the impetus behind NAFTA. It remains the objective, but the agreement has to be renegotiated with assumptions based on reality.
What is important is to grow the middle class throughout North America. This is not a zero sum game!
The United States and Canada can help accelerate Mexico’s economic development but Mexico must take the first step by cleansing itself of rampant internal corruption.
In addition to demands for better schools, the emerging middle Mexican middle class will demand effective public safety and better social services. NAFTA negotiators must support these demands.
Further, they must link renegotiation to forceful actions by the Mexican government to deal with international drug smuggling and human trafficking.