The Creation of a Free Trade Agreement between the United States and Mexico. The Implications for Mexican Development and the United States Economy

Abstract

The research for this SIP included extensive use of the University of Michigan Graduate School Library and Business School Library. In addition interviews were conducted with Ford Motor Company's public policy analyst and international economist at the Dearborn, Michigan, World Headquarters Building. Interviews were also· conducted at the Ford Hermisillo Stamping and Assembly Plant in Hermisillo, Mexico, with the Plant Controller and other members of the plant management. The free trade agreement will be a break with the historical precedences of both countries. As recently as the 1970's Mexico engaged in trade practices that sharply restricted the inflow of foreign trade. The United States has never offered the same scenario for unlimited trade to a developing country. The position of Mexico as a developing country makes this trade agreement unique. Models of economic development show the United States and Mexico i.n complementary development stages. The reality of the U.S.'s and Mexico's current economic states further emphasizes this theoretical basis for trade. Comparative advantage and analysis of the HO model place Mexico and the United States on the polar complementary scale of being la~or intensive and capital intensive. The Mexican government's objective of continued development will cause them to look beyond the immediate gains to consumerism when applying their comparative advantage. Opposition to the free trade agreement exists but only through a skewed analysis of its real effects. The points of contention raised by free trade opponents should serve as a guide to negotiators in their attempts to implement free trade at a pace that will avoid staggering blows to either economy. The introduction of U.S. industry and consequentially capital and technology, will help Mexico to break through its developmental rut. Modernized industry and free trade industry that already exists in Mexico will serve as a guide to new industry inflows. Wage rates and productivity are both anticipated to experience unprecedented growth. Thus, the standard of living should increase in Mexico. The implementation of a properly timed free trade agreement coordinated with the fixing of the peso to the U.S. dollar should help Mexico to relieve its debt burden. The relationship will then proceed to resemble that of the European Economic Community. The implications of a free trade agreement go beyond the current trade zone and success in a U.S.-Mexican trade agreement should lead to interest on the part of other Latin American countries. The possibility of an expansion of trade relations will be tied with the development needs of these countries as well.