NAFTA and Mexican Free Trade: Aiding Our Neighbor to the South

March 3 / US
NAFTA and Mexican Free Trade: Aiding Our Neighbor to the South

By: Troy Ryley, Senior Vice President,  Mexico, Transplace

*Note: A version of this article previously appeared in the Adam Smith Project, a new initiative on trade from the publishers of American Shipper.

The North American Free Trade Agreement (NAFTA) and its effect on the United States has been a much-talked-about topic recently, and there exists a desire to either renegotiate or terminate NAFTA and implement additional taxes on goods that are made in Mexico and sold in the U.S. However, this would be an economic mistake for North America.

While there are some improvements that can be made to NAFTA, it’s on the right track to promoting free trade and driving economic growth for all of North America. Terminating NAFTA would not only eliminate the ultimate objective of free trade between the countries and increase the cost of goods, but would further damage Mexico’s already fragile economy and ultimately damage our entire North American “neighborhood.”

Ending NAFTA Destabilizes a Friendly Neighbor

Due to factors such as recent fuel price hikes and the continued devaluation of the peso, Mexico’s rather fragile economy is at a tipping point. U.S. goods are currently more expensive for Mexicans, and it is cheaper for U.S. companies to produce goods in a devaluated economy, which is why some companies have moved production to Mexico. In many ways, this has helped support the development of Mexico’s infrastructure in recent years, and hindering trade would undo the progress that has been made.

The U.S. should be looking at Mexico as our friendly neighbor down the street, and our domestic economy would be much better off with a strong middle-and-upper-class neighbor in the south, much like the one we have in Canada to the north. Doesn’t having a strong neighbor with a stable economy and growing workforce benefit all of North America?

While U.S. safety and economic stability are important, fundamentally destabilizing Mexico does not meet our objectives as a country. Free trade is the key to continued economic growth in North America. If we can make strong strides in Mexico by investing in its infrastructure and helping to create successful trade, we insulate ourselves economically and create our own successful North American trading bloc.

The Path to a Successful North American Economic Bloc

Mexico is on the path to becoming a fully modernized nation. According to the International Monetary Fund, Mexico has the 11th-highest GDP in the world based on purchasing power parity. If the U.S continues to help Mexico on this path, it could become one of the top economies in the world – assisting us in creating a solid, successful economic bloc.

This would help us be on an even plane with the European economic bloc, which has been able to accomplish much more than North America in terms of free trade. The European Union (EU) allows transportation, people and jobs to flow freely across borders – and although the EU has certainly had its problems – there is an enhanced level of sophistication in the EU trade bloc, and it is a respected competitor in innovation, design and sales merchandise across the world.

If North America could mirror this type of free trade model, more consumers would be freely purchasing goods and stimulating the U.S. economy. Ending NAFTA would dismantle the progress we’ve already made toward this type of free trade system. And for the U.S., the more stability within Mexico, the better. With a stable economy, more Mexican people will stay and work within their home country – increasing trade and the buying power on the part of Mexicans to consume U.S. goods. We’re not going to be able to sell our goods to a nation with crumbling infrastructure, devalued currency and lack of jobs. Let’s not be shortsighted. Let’s keep developing a North America that supports trade and builds a strong infrastructure and economy for Mexico, Canada and the U.S.

How would continued free trade with Mexico impact your organization?

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