NS3040 Fall Term 2018 Pre-NAFTA Assessment Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

NAFTA Cost/Benefits U.S. I Stephen Stamos, Reflections on the Proposed U.S.-Mexico Free Trade Agreement, 1993 U.S. Perspective Positive aspects U.S. firms have better access to cheaper labor/parts Increased access to growing export markets Liberalized foreign investment laws in Mexico Expansion of financial and services sectors to México Mexico becomes a very reliable sure of petroleum Enhance Mexico’s political stability Overall a net employment gain Increase the competitiveness of U.S. firms Assist U.S. banks in resolving Mexico’s debt service Ease immigration pressures

NAFTA Cost/Benefits U.S. II U.S. Perspective Negative Aspects Employment loss in select industries and regions Forced restructuring in sectors like agriculture Downward pressure on U.S. wages/standard of living Increased competition for small-medium sized firms Uneven regional impact

NAFTA Cost/Benefits Mexico I Free Trade for Mexico Positive aspects Increased direct private foreign investment Repatriation of “flight capital.” Increased economic growth Increased Export Growth Increased diversification of the economy Increased employment and Income Increased expansion of the internal market Promote a more modern and open economy

NAFTA Cost Benefits Mexico II Free Trade for Mexico Negative Aspects Increased integration with the U.S. Economy – increased vulnerability Worker and community Issues: health, safety and the environment Child labor laws and regulations The adjustment realities for Mexican firms The changing structure, composition and composition of production in Mexico Uneven regional economic impact – Northern border versus other areas A challenge to Mexico’s historic nationalism Compromises future policy options in terms of the external debt situation

NAFTA Cost Benefits Mexico III Real Questions for Mexico Re-examination of the positives Will capital flight return? Will wages (real income) increase? Will domestic markets expand? Will the pace of immigration slow? Will foreign investment flow significantly to where it is needed? What will be the character of a more open and modern economy that is driven by export-led growth? Will the lost standard of living of the 1980s be regained for those who lost it?

NAFTA Cost Benefits Mexico IV The Real Questions for Mexico A Re-examination of the negatives Will the negatives be even worse than imagined? What kind of protections can be built into the agreement to seriously address genuine negatives Final Thoughts NAFTA obviously inevitable When U.S. economy strong the positive economic influences will be more self evident, especially in the Northern border states While economic benefits for parts of Mexico obvious, for Salinas NAFTA a essential part of his neoliberal reforms to bring Mexico into the global economy.