The Trump administration’s proposed Mexico policies regarding immigration and trade will make America’s fears a reality.

Minutes after descending from the golden escalator at Trump Tower, Donald Trump fired the first salvo at what would eventually become one of his favorite electoral targets during his presidential campaign: Mexico. Mr. Trump attacked the southern neighbor from two different fronts: immigration and trade. In his first speech as a presidential candidate he stated clearly his adversarial vision of Mexico:

“When do we beat Mexico at the border? They’re laughing at us, at our stupidity. And now they are beating us economically. They are not our friend, believe me. But they’re killing us economically. The U.S. has become a dumping ground for everybody else’s problems… When Mexico sends its people, they’re not sending their best… They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists.”

On the surface, these two issues, immigration and trade, could seem unrelated. In reality, these are two policy areas that are heavily intertwined and, along national security, are the main pillars of one of the United States most important relation with a foreign nation: the relation with its southern neighbor.

Immigration

The focus on immigration, particularly undocumented, soon gave birth to one of Mr. Trump’s greatest campaign devices: the building of a wall between the United States and Mexico. Taking the issue further, not only was he advocating that the wall would be built, but also proposed that Mexico pays for it. “Build The Wall” became a campaign cry in subsequent months and one of the key promises of the Republican candidate. The purpose of said wall came along with the promise to “secure the border” and create a “deportation force” with the purpose to remove the estimated 11 million illegal immigrants living in the United States. Since about half of the undocumented US population is thought to come from Mexico, this narrative quickly added toxicity to the rhetoric that the Trump campaign had against in regards to Mexico.

The electoral benefits of such a stance were evident as hard talk on immigration remains one of the best ways to mobilize the conservative base. In addition to capture the traditional parts of the electorate concerned with national security, by adding trade and NAFTA to the rhetoric allowed Mr. Trump to break traditional democratic stronghold and gain support of middle class workers whose jobs prospects might have suffered due to globalization.

This perception of a southern border being overrun by undocumented people, however, is very different from what the numbers say. The Pew Research center recently reported that more Mexicans are leaving the country than coming in and the US Border patrol statistics show that apprehensions at the border, a metric used to calculate undocumented crossings, are currently at a 40-year low. In other words, the facts regarding immigration from Mexico do not match Mr. Trump campaign rhetoric.

The massive shift on Mexican immigration patterns is due to several reasons. Among the most important are the following: Mexican population growth has decreased considerably. In 1970, the Mexican fertility rate was almost seven births per woman, one of the world’s highest. A couple decades later, about the time where the population born in the 1970s reached adulthood, the US experienced a peak in undocumented immigration from Mexico. The Mexican fertility rate since 2000 has been just above two births per woman and declining. In short, there are simply not enough young Mexican people for the migration levels to return to the levels of the 1990s.

Immigration is usually composed of both “push” and “pull” factors. The example of high fertility rates combined with the macroeconomic mismanagement Mexico experienced in the 1980s and 1990s were obvious “push” factors that led to more Mexican migration to the US. Since the late 1990s, macroeconomic management in Mexico has been prudent and has not experienced any self-inflicted recessions. Economic growth, while not at the country’s full economic potential, has been consistent and allowed the economy to create enough jobs and stability to create a “pull” factor that allowed Mexicans to have other options, rather than migrating to the United States. The impact of NAFTA and the opening of the Mexican economy to the world were key components of this new Mexican reality.

Bilateral Trade

Regarding trade, Mr. Trump’s reference in his speech that Mexico was “killing us economically” was the preamble of another great campaign device: the desire to renegotiate or repeal the North American Free Trade Agreement (NAFTA). Early in the campaign, NAFTA became one of Mr. Trump’s favorite targets, often referring to NAFTA as the “worst trade deal ever.” Along with China, Mexico, through NAFTA, was blamed for the loss of thousands, if not millions, of US jobs, particularly in manufacturing. Through this anti-free trade rhetoric, Mr. Trump was able to tap into the anger of certain sectors of the population, particularly those in the manufacturing sector, who saw their factories close and move abroad over the last few decades.  This allowed him to break the so called Democratic “blue wall” and capture the support of people in the rust belt and key states like Ohio and Wisconsin that paved the way for his presidency. Mexico, in the eyes of some Trump supporters, is not only a source of undocumented immigration, but also a country that is taking jobs away from the US.

According to the US Census Bureau, in the first 11 months of 2016, trade between Mexico and the US reached $482 billion dollars, making Mexico the third largest US trading partner and second largest destination for US exports in the world. As a matter of perspective, during the stated period Mexico bought more US products than China, Japan, and the United Kingdom, the third, fourth, and fifth export destinations for the US, combined.

One of Mr. Trump’s main arguments to support his animosity towards Mexico and China is the current trade deficit the US holds with these countries. The US Census Bureau data shows that, while the trade deficit with China is by far the greatest ($319 billion), the deficit with Mexico is much smaller (58.8 billion) and similar to other US trade deficits with Germany ($59.6 billion) and Japan ($62.4 billion). It goes without saying that none of these three countries are part of NAFTA. Deficits cannot be solely attributed to free trade agreements. One explanation for President Trump’s focus on China and Mexico could be outsourcing. Companies are not known to move US jobs to Germany, Canada, and Japan, but there is no denying that this has occurred, in some extent, with China and Mexico.

However, placing outsourcing to China and Mexico in the same category is a gross misunderstanding of current international trade trends and the benefits of regional integrated supply chains. When a company moves jobs to China they take the vast majority of the production chain with them. It makes sense from a geographical standpoint since production requires proximity to the supply chain. The case of Mexico is very different. As a general rule, companies moved to Mexico only part of their production. In most cases, it was the low-skilled, labor intensive portions of the production. This allowed companies to keep higher skilled jobs in the US by leveraging the cheaper labor in Mexico to produce parts and other necessary components of production. In other words, by moving some low skill jobs to Mexico manufacturers are allowed to keep part of their production in the US as opposed to sending the whole production chain to China.

Prosperity in Mexico has several benefits for the US: less undocumented migration, increased security and higher demand for US products. It is hard to find a better example of a win-win-win.

The results are quite clear. According to the Wilson Center, a Chinese export has about 3-4% US made contents/inputs while a Mexican export product has, on average, 40% of US made content/inputs. In other words, out of the $270 billion Mexican exports to the US, $108 billion, around 40%, eventually end up back in US companies due to the benefits of supply chain integration. As an example, the number one US import and export with Mexico are automobiles. Due to supply chain integration, cars cross the border multiple times during production. One can argue that there is no such thing as a US, Mexican, or Canadian made automobile but a North American made one. In the words of President John F. Kennedy, “A rising tide lifts all boats.”

Mr. Trump continuously boasts his business acumen and credentials. Is it good business to ostracize your second largest customer? Furthermore, supply chain integration with Mexico makes the US and its exports more competitive world wide. The US Chamber of Commerce states that trade with Mexico supports up to six million US jobs. A high percentage of these jobs will be put in jeopardy if relations are meddled with. Is it wise to trade those jobs for the estimated 800 thousand low-skilled/low paid jobs that the US lost to Mexico?

Unintended Consequences.

As stated, thinking of immigration and trade policy as two different issues is a mistake. These two issues, along with national security, are deeply intertwined and one must be careful to act without consideration of the implications across all three realms. Unfortunately, so far this is what Mr. Trump’s policy towards Mexico appears to be doing. The historical low levels of apprehension at the border, not seen since 1973, hardly justify building a $20 billion wall on the border. Signaling NAFTA as the main culprit of the loss of manufacturing jobs in the United States without mentioning advances and growth in robotics used in manufacturing only tells a small part of the story.

Mexico has made tremendous strides during the last decade towards creating economic incentives to keep their citizens within its borders. A large part of these economic incentives are derived from the burgeoning trade with the US. In 1993, the year before NAFTA was implemented; US-Mexico trade was $81 billion dollars, according to the US Census Bureau. In comparison, through November 2016, yearly total trade between countries reached more than $481 billion dollars. Mexico made the transition from a natural resource based economy into one based increasingly on complex manufacturing. Prosperity in Mexico has several benefits for the US: Less undocumented migration, increased security, and higher demand for US products. It is hard to find a better example of a win-win-win.

The frontal attack of the Trump administration to this equilibrium, particularly NAFTA and hence the stability of Mexico, could have dire consequences for both countries. A withdrawal from NAFTA could prove disastrous in the short term for Mexico as 80% of its exports are destined for the United States. Mexico could easily end up in a steep recession that could cost millions of Mexicans their jobs and sources of income. It is easy to imagine the consequences of what would happen if up to a million maquiladora workers right across the U.S. Mexico border suddenly find themselves unemployed. If history serves as guide, Mexico will see a spike in organized crime activity and migration to the US. While the argument has been that current undocumented immigration numbers do not justify President Trump’s focus and escalation on the border, his nationalistic vision on trade could end up destabilizing Mexico to the point where people begin migrating north in numbers large enough to make the need for a wall a reality. His proposed policies are, therefore, counterproductive to both the US and Mexico as they could deteriorate this delicate balance to the point that his pessimistic, and largely unsupported by facts, vision will come to fruition.

 

Source: Trump’s Flawed Logic Regarding US-Mexico Relations – Fair Observer

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