Was the North American Free Trade Agreement a success, failure or both? Twenty years after NAFTA went into force, the Baker Institute’s Mexico Center attempted to answer this question at its inaugural conference. Daniel Lederman, deputy chief economist for Latin America and the Caribbean at the World Bank, argued that the answer might not be that simple, saying that “the debates over the developmental, distributional and employment effects of NAFTA remain unresolved.”
On one hand, NAFTA’s facilitation of trade linkage and liberalization certainly helped modernize the economic superstructure of the Mexican business model. This benefitted the Mexican economy in the long run, as it led to the adoption of contemporary standards and practices that brought Mexican market models up to par with those of the U.S. and Canada. However, international and domestic events have intrinsically altered the Mexican economy and its trade structures. The war on drugs gave rise to localized violence along the U.S. border — areas best positioned to take advantage of NAFTA. The 1994 micro-financial crisis, the resulting devaluation of the peso and the global financial crisis of 2008 all served to dampen the growth of the Mexican economy.
Perhaps the most important development during this period, however, took place thousands of miles from North America: the evolution of China into an international trade giant, marked by its entrance into the World Trade Organization in 2000. More than anything, the specter of Chinese competition damaged the Mexican manufacturing sector. In fact, according to the World Bank, average annual GDP growth for Mexico from 2001-2006 was 1.29 percent lower than GDP growth from 1994-2000. Combined, these unforeseen market forces worked to the detriment of the Mexican economy, and it is hard to speculate the direction the economy might have taken without NAFTA. Thus, NAFTA’s success in institutionalizing contemporary market norms must be heavily qualified by the harsh economic realities of post-NAFTA Mexico.
Trading blocs will continue to be an integral part of North American economic growth, but an important caveat is that treaties like NAFTA — made to enhance international free trade — cannot be mistaken for economic development models. NAFTA was most remarkable for facilitating international market cooperation and modernizing Mexican trade and business practices, not for turning Mexico into a developed economy, as was speculated.
Moving forward, agreements such as the Trans-Pacific Partnership could provide increased market integration and liberalization. If the TPP were signed today, the trading partners would include 40 percent of the global population and 60 percent of the world’s aggregate GDP. As a result of these partnerships, increased international trade would strengthen business and economic ties between countries. For Mexico as well as other countries, the TPP could surpass the qualified success of NAFTA and allow for the diversification of markets and real developmental growth. However, while NAFTA’s impact on Mexico suggests that such multinational treaties can help build modern standards for trade and business practices, to overemphasize the connection between trade and development would be a mistake.
Marcela Benavides is an undergraduate intern with the Baker Institute’s Mexico Center. Benavides is a student at Rice University majoring in political science and Latin American studies. Her areas of interests include public policy, education and international relations — specifically, U.S.-Mexico relations. Benavides is originally from Monterrey, Mexico.
Alex Haer is an undergraduate intern with the Baker Institute’s Mexico Center. Haer is a student at Rice University majoring in political science. His areas of interest include international relations and business. At the Baker Institute, he researches and analyzes Mexican politics and provides editorial assistance with policy publications.