So, What About NAFTA?

• Since the North American Free Trade Agreement came into effect in 1994, Mexico has surged to become the U.S. electrical equipment industry’s #1 export market and trading partner.  Not incidentally, it has also changed from being a one-party state to a place where electoral outcomes are now uncertain. 
• Mexican earlier had high tariffs to protect its electrical equipment industry.  Then,  from day 1 of the Agreement it had 15% electrical equipment duties that were to decrease 1.5% each year over 10 years until they hit zero.  In practice however, after a few years the Mexicans realized that they wanted (rather than wanted to resist) high quality U.S. electrical equipment inputs in order to boost their competitiveness, so they zeroed out a number of their electrical tariffs ahead of schedule.
• Nowadays Mexico runs a strong electrical equipment surplus with the U.S., driven in part by the many companies from the U.S. and elsewhere that have set up manufacturing facilities there.  Some of these shipments are of finished goods that would otherwise be much more expensive for U.S. consumers.  Some of these are of components for (often intra-company) higher-end U.S. manufacturing that would otherwise need to spend more on inputs.   
• While Canada has fallen in our export and trade partner rankings to #2, trade to and from our Northern neighbor has also grown significantly.  Our sectoral surplus with Canada is still close to twice our deficit with Mexico – though over the years our Northern surplus has tended to go down as much as our Southern deficit has risen.
• Overall U.S. electroindustry employment figures are down since the mid-‘90s, but productivity is up, and in recent years manufacturing employment in our sector has been down in just about every country, including China.  Improved technology, rather than trade, appears to be the reason.
• Some U.S. states and regions are having trouble retaining jobs, but does the problem lie more with these places for reasons relating to their taxation, regulation and unionization?  Arguably, only the “destinations” have changed to, successively, the U.S. South, the Sunbelt, Mexico, China, and now – since the Middle Kingdom itself is starting to become too expensive in some ways – the Vietnams of the world and beyond.
• Some U.S. regions are magnets for investment and innovation, but the days of rote assembly line work are over.  Employers seek people with skills and/or education.  If you’re living in a stumbling region, it may be time to move to an up and coming one.
• It’s not just about labor costs.  Relative to more economically developed places, Mexico (like many other developing economies) still has drawbacks as a business site, including (in no particular order) weaker infrastructure, violence, institutional instability, legal uncertainty, low education levels, pollution, corruption, etc.  In short, companies have plenty of reasons to diversify their holdings across several countries, and definitely maintain significant presences in the U.S. and other developed markets – which is why their total investments in the “poor” countries still tend to be less than their investments in the “rich” ones.
• Reflecting much of this, NEMA now has a Mexican-based member, Conductores Monterrey, that has a U.S. subsidiary.
• With regards to illegal immigration from Mexico to the United States, which some contend has increased, the problem many not be that NAFTA went too far – truth be told, the Agreement didn’t cover immigration issues – but that it did not go far enough.  NAFTA may have brought on two-way electrical equipment free trade, but it was a one-way deal with regards to agriculture.  Yes, U.S. farms gained market access to the South, but our own agricultural restrictions remained in place.  Little wonder then that many Mexican farms have been unable to compete against imports from El Norte, so guess where their ag workers are now trying to go?
• If you are thinking about renegotiating NAFTA, remember that the gripes come from all corners.  For starters: Mexico complain about our not implementing our commitment to let in its trucks; Canada beefs about our reluctance to take in its wood.  And for that matter, do we really want to break off and try to renegotiate a free trade agreement with the countries that are presently our top two petroleum suppliers?