U.S.-Mexico Trade: The Numbers and the Real Issues

By Robert A. Blecker*

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Two maquiladoras in Tijuana, Mexico. The low percentage of Mexican value-added in Mexico’s exports is a key reason why the country has not gotten nearly as much employment growth as it hoped for when it joined NAFTA. / Anthony Albright / Flickr / Creative Commons

Officials in the Trump administration are proposing a new way of measuring the U.S.-Mexican trade deficit that, by making the deficit look larger than it currently appears, will likely be spun to support efforts to impose high tariffs or dismantle NAFTA.  According to press reports, the President’s senior advisors, including the head of his new trade council, Peter Navarro, are proposing to include only “domestic exports” (exports of U.S.-produced goods) in calculating bilateral trade balances with Mexico and other countries.  This would exclude “re-exports” – goods that are imported into the United States from other countries (such as Canada or China) and transshipped into Mexico – which are currently counted in total U.S. exports.

  • In spite of its political motivation, the proposed new accounting would render a more accurate measure of U.S. exports. In fact, it would make the U.S. deficit with Mexico look closer to what Mexico reports as its surplus with the U.S.  For 2016, the U.S. reports a deficit of $63.2 billion with Mexico, while Mexico reports almost twice as big a surplus of $123.1 billion with the U.S.  If the U.S. excluded re-exports, its trade deficit with Mexico for 2016 would be $115.4 billion, which is much closer to the Mexican number.

Nonetheless, this recalculation fails to correct for another bias, which makes the U.S. deficit with Mexico look artificially large.  Imports are measured by the total value of the goods when they enter the country, from the immediate country of origin.  But in today’s global supply chains only part of the value-added in imported goods comes from any one country.  A television, for example, can be assembled in Mexico with components imported from Korea and other East Asian nations.  As a result, the reported U.S. imports from Mexico (especially of manufactured goods) greatly exaggerate the Mexican content of those goods.  Although data limitations do not permit an exact calculation of the Mexican content of U.S. imports from Mexico, it is likely relatively low.  (My own estimates suggest it is on the order of about 30-40 percent for manufactured goods).  Indeed, the low percentage of Mexican value-added in Mexico’s exports is a key reason why the country has not gotten nearly as much employment growth as it hoped for when it joined NAFTA.

The Trump Administration’s aggressive rhetoric and action on other issues related to Mexico, including immigration and the wall, suggest a political motivation for the proposal to adopt a new measure of exports, regardless of its merits.  But the real problem is not the “correct” number for the U.S.-Mexican trade deficit; it is why NAFTA has not lived up to its promise of supporting high-value added exports and high-wage job creation in both countries.  This promise was based on the idea that the United States would export capital and intermediate goods to Mexico for assembly into consumer goods, which would then be exported back to the United States.  But especially since China joined the WTO in 2001, Mexico has increasingly become a platform for assembling mostly Asian inputs into goods for export to the United States (and secondarily Canada).  Even if “re-exports” are excluded, Mexico remains the second largest export market for the United States (after Canada) – and U.S. exports to Mexico are 65 percent greater than U.S. exports to China.  Focusing too much on measuring the U.S.-Mexico trade imbalance only distracts attention from the need to reform NAFTA so as to encourage more of the “links” in global supply chains to be produced in North America generally.  If the Trump administration is serious about making the U.S. more competitive vis-à-vis China, it should think about viewing Mexico as a partner instead of as an enemy.  In the larger context of Trump’s many objectionable policies on migration and in other areas, a long-overdue correction of U.S. export statistics is not worth getting upset over.  The real issue is whether Trump’s trade policies – with Mexico and beyond – will bring the promised gains to U.S. workers, or will further enrich corporate billionaires and Wall Street tycoons.

February 23, 2017

* Robert A. Blecker is a Professor of Economics at American University.

Mexico: Changing the Narrative on Immigrants

By Carlos Díaz Barriga*

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Mexican President Enrique Peña Nieto welcomed deported citizens at Mexico City’s airport two weeks ago, a first for the president. / Gobierno de México / Creative Commons

President Donald Trump’s decision to put Mexican immigrants at the top of his enemies list has prompted Mexico to become more active – and more creative – in reaching out to compatriots in the United States to help them remain there or to cushion the shock of deportation.  Largely because unauthorized Mexican immigration had been in decline for many years, it rarely made front-page news in Mexico, but since Trump’s rhetoric during last year’s campaign and since winning the presidency there has been no topic more popular in Mexico.  The 5.8 million unauthorized Mexican immigrants living in the United States, according to Pew Research Center estimates, have their home country worried about the economic impact their deportation could cause.  As Washington’s threat to deport millions looms ever larger, the Mexican government and other institutions are preparing for such a scenario.  Their game plan includes both helping Mexicans fight deportation and easing their transition if deported.

  • Mexican consulates in the United States are actively offering legal advice to any migrant facing deportation. President Enrique Peña Nieto announced the country would send $50 million to hire lawyers and set up outreach programs.  The consulates also set up a 24-hour hotline for immediate help and are actively sharing infographics on social media indicating how undocumented immigrants should react if they are detained.
  • Two weeks ago, President Peña Nieto personally received 135 deported Mexicans at Mexico City’s airport – the first time ever. Throughout the encounter he shared an upbeat and welcoming message.  He described Mexico as a “land of opportunities” and said, “The doors are always open.”  Dressed casually in a shirt without a tie, it was an image reminiscent of Canadian Prime Minister Justin Trudeau’s warm welcome of refugees.
  • Mexican political leaders have launched Operación Monarca, a multi-party movement to form alliances that benefit deported immigrants. A group of Mexican senators involved in the initiative participated in a forum last week in Phoenix, Arizona, entitled “Agenda Migrante,”at which dozens of undocumented immigrants shared anecdotes of their current situation, expressed their worries, and demanded Mexican officials and advocacy groups fight U.S. policy harder.
  • Universities in the country are also embracing the returning Mexicans. Universidad Iberoamericana, a private institution with various campuses around the country, offered 1,500 full-ride scholarships to incoming deported youths.  The public Universidad Nacional Autónoma de México, one of the country’s most prestigious institutions, also announced it’s starting to work with some U.S. colleges to assure that their students who are deported can continue their studies in Mexico.
  • Since Trump threatened to overhaul the tech-favored H1B visa work program, cities like Guadalajara have declared interest in becoming a technology hub. Mexicans hold a little more than one percent of the approximately 300,000 H1B visas (India has more than half), but the number of returning workers with technical qualifications could be significant.

President Trump’s border wall and its cost remain major irritants in the relationship, and there is great uncertainty over how the “renegotiation” of NAFTA will proceed, but Foreign Minister Luis Videgaray and President Peña Nieto continue to say Mexico is willing to cooperate with the United States wherever they can.  They are hopeful to keep a strong relationship, while staying firm in their conviction that Mexico will not pay for the wall.  Their shift on the undocumented in the United States reflects that commitment.  No longer are unauthorized immigrants considered a long-term and one-sided issue in U.S.-Mexico relations, but rather an immediate and mutual problem.  Mexico’s welcoming and warm message is probably small comfort to those being deported, and it is unclear if any of these actions could mitigate the economic and social impact for them, but the Peña Nieto government appears to be giving priority to avoiding a major train wreck with Trump over immigrants for now, and leaving the details for the future.

February 20, 2017

* Carlos Diaz Barriga is a CLALS Graduate Fellow.

U.S.-Mexico Tensions: Harbinger for Latin America?

By Eric Hershberg and Fulton Armstrong

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The U.S.-Mexico border near Tijuana and San Diego. / Tomas Castelazo / Wikimedia Commons / Creative Commons

U.S. President Donald Trump’s unilateral actions on Mexico last week have precipitated the most serious crisis in bilateral relations in decades and threaten to further undermine U.S. image and interests throughout Latin America.  During last year’s campaign, in the face of Trump’s characterization of Mexicans as rapists and drug-traffickers and repeated pledges that he’d make Mexico “pay for the Great Wall,” President Enrique Peña Nieto adopted a strategy of patience and positive engagement.  He paid dearly in political terms for meeting with Trump in August – a misjudgment that worsened his already declining popular approval – but he continued to try to stay on the high road after the election.

  • Peña Nieto resurrected former Finance Minister Luis Videgaray, the architect of the Trump meeting last August, as Foreign Minister, and he replaced his ambassador in Washington with one having deep experience with NAFTA and a reputation for calm negotiation, in response to Trump’s repeated demand for a renegotiation of the 1994 accord. As opponents across the political spectrum egged him on to reciprocate Trump’s belligerent tone and strident U.S. nationalism, Peña Nieto – like all Mexican presidents for the past 25 years – tried hard to suppress the anti-Americanism that has lingered beneath the surface of Mexican politics even while the two neighbors have become increasingly integrated economically, demographically, and in governance.  Even after Trump’s first barbs following inauguration on January 20, Peña Nieto emphasized his preference for calm dialogue – “neither confrontation, nor submission.”  He declared that Mexico doesn’t want walls but bridges, and accepted the American’s demand to renegotiate NAFTA, although with a “constructive vision” that enables both sides to “win,” with “creativity and new, pragmatic solutions.”

Preparations for the summit meeting, scheduled for this week, crashed when Trump – without coordinating with his Mexican counterpart or the appropriate U.S. government agencies – issued executive orders putatively aimed at tightening control of the border.  One directed an immediate increase in efforts to deport undocumented Mexicans, and the other launched the “immediate construction of a physical wall on the southern border.”  Trump initially abided by an informal agreement with the Mexicans not to repeat his harangue that he was going to make Mexico pay for the wall, but on January 26 he tweeted that “If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting.”  His press spokesman followed up with a suggestion that Washington could impose a 20 percent tariff on imports from Mexico to cover the costs of construction, after which Peña Nieto, facing a firestorm at home, postponed the meeting.  The two presidents talked on the phone for an hour the following day and reportedly agreed to let things calm down, although the two sides presented different versions of the chat.

The speed of the trainwreck – in Trump’s first week in office – and the depth of the damage his unilateralism has done to bilateral relations have alarmed many in Mexico and the United States, including Republicans who worked hard to build the relationship.  (Only the Administration’s stunning decrees regarding immigration from other parts of the world have overshadowed the mess.)  Mexico is, of course, not without leverage and, as Trump stirs up long-repressed Mexican nationalism, Peña Nieto – whose popular support was recently in the garbage bin – is going to have to talk tough (at least) and could have to retaliate.  He could impose tariffs on the billions of dollars of Mexican exports that Americans have grown accustomed to having at low prices.  Mexico could also opt to diminish cooperation in counternarcotics and other law enforcement efforts, or to cease blocking Central American migrants seeking to reach the U.S. border – interests that the impulsive Trump policy team doesn’t seem to have considered.

Coming on the heels of Trump’s executive order totally withdrawing from the Trans-Pacific Partnership, the new president is presenting the image of a U.S. leader whose harsh policies and arrogant style serve neither the United States nor Latin America’s interests.  Having appointed as White House National Security Council Senior Director for Latin America a political scientist whose writings draw bizarrely on analytic approaches that have been rejected in the discipline for more than 30 years, and whose recent articles lament the Obama administration’s abandonment of the Monroe Doctrine, the region’s leaders will rightly conclude that Washington is voluntarily abdicating any plausible case for leading multilateral cooperation around common interests.  The United States and Latin America are inextricably linked, however, and a policy based on stale assumptions of big power unilateralism ultimately will run into insurmountable obstacles: however ignorant Trump and his team are proving themselves to be, we live in the real world of the 21st century, in which imperialist, mercantilist fantasy will be treated with the disdain that it deserves.

January 31, 2017