There's a Big Issue with Obama's TPP Deal That's Being Ignored

Alan Tonelson |

It’s at least ironic if you’re an American – and nothing less than tragic if you’re a Mexican – that during a U.S. presidential campaign when immigration has become a major flashpoint, the Obama administration has just sealed a global trade deal that’s not only bound to drag on U.S. growth and employment by fueling even greater trade deficits. The Trans-Pacific Partnership (TPP) is also likely to subject Mexico’s economy and workers to new global pressures, trigger a new surge of economic casualties across the border, and expose many of their American counterparts to even fiercer competition on the immigration front as well.

TPP’s overlooked potential to hammer Mexico and spark a new immigration crisis stems from a fundamental mistake made by American leaders and trade diplomats practically since the ink on the North American Free Trade Agreement (NAFTA) began drying – failing to set strategic priorities in trade policy, and thus ensuring that the impact on intended foreign beneficiaries is fatally diluted.

A strong case in principle can be made that trade agreements shouldn’t seek strategic objectives at all, and that they’re justified solely by the economic efficiency gains they produce for all parties. But just as President Obama has repeatedly touted the potential of the TPP to contain China’s influence in the Asia-Pacific region, NAFTA was often presented as a way to strengthen Mexico – a neighbor whose problems inevitably bled over into the United States. Crucial to fostering jobs and other forms of economic opportunity in Mexico, and the industrialization needed to quicken economic development, were NAFTA provisions that gave duty-free entry into the U.S. market for goods mainly produced with inputs from Mexico and its NAFTA partners the United States and Canada.

The tariff penalties for not meeting the North American content standards were never high enough to completely prevent countries outside the NAFTA region from using Mexico simply as a low-wage assembly site for exports headed for the United States. Therefore, Mexico was denied many of the jobs and other benefits and spillovers flowing from manufacturing industrial parts and components. But in tandem with Mexico’s proximity to American customers, NAFTA preferences were strong enough to expand Mexican manufacturing greatly, especially in the automotive sector.

Unfortunately for Mexico, U.S. trade liberalization efforts didn’t stop with NAFTA. Throughout the 1990s and into the following decade, Washington moved to expand trade with a great number of developing countries all of which needed export-led growth as much as Mexico, and all of which were making a similar array of products. Consequently, all of these countries wound up competing for shares of the U.S. market that, however vast and robust, could not possibly accommodate all of their output even leaving aside the impact on domestic industry and employment. American moves to increase trade with China proved especially damaging to other U.S. third world trade partners, and Mexico was one of the countries plainly left in the dust.

Just look at Mexico’s share of U.S. manufacturing imports during the two decades of NAFTA’s existence. From 1994, when the deal went into effect, through 2001, this figure grew rapidly – from 7.17 percent to 11.69 percent. At the end of that year, however, China was admitted to the WTO – which gave foreign investors the kind of guaranteed access to the U.S. Market for factories in China that they already enjoyed for their Mexican facilities. Through 2006, Mexico’s share of America’s manufacturing market plummeted – all the way back to 9.98 percent. Can it be a coincidence that those years were a time of record growth in the numbers of Mexicans living illegally in the United States?

Mexico began regaining competitiveness in fits and starts the following year, and despite some annual setbacks, and slower annual growth rates, its share of U.S. manufacturing imports hit a new record of 12.77 percent last year. America’s illegal Mexican population, moreover, began declining the following year.

Washington, however, has just agreed at the TPP talks to reduce the non-Mexican, non-North American content of vehicles that Japanese auto-makers can sell to the United States without any tariff penalty. Thus the treaty could well cut this Mexican competitive comeback off at the knees. Moreover, combined with ongoing Mexican economic weaknesses that can’t be legitimately blamed on American trade policy – e.g., poor schools – the U.S. decision to placate Japan sets the stage for another wave of prospect-less or job-losing Mexicans to head north.

The American political drama bound to result is equally predictable. The chattering classes will overlook this TPP strategic failure and help cheer it through Congress. U.S. workers, especially in middle and lower-skill sectors, will consequently face even more wage-destroying competition from Mexican newcomers. Victimized U.S. voters will rally again behind candidates promising to put their interests first in trade and immigration policy. And they’ll once more be dismissed by media and political elites as xenophobes and know-nothings.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Emerging Growth

Reliq Health Technologies Inc.

Moseda Technologies Inc provides mobile and IT cloud computing to increase operational efficiency and security. It develops SmartFleet, a solution designed for commercial use, as well as SmartCare, a mHealth…

Private Markets

Initial State

Initial State is an Internet of Things (IoT) data analytics & data management platform company. We turn sensor and event data into information that matters by making it easy to…

BioSculpture Technology, Inc.

BioSculpture Technology, Inc. (“BST”) is a commercial-stage medical device manufacturer of liposuction surgical instruments for surgeons. It offers the FDA-cleared Twin Cannula Assisted Liposuction ("TCAL") Airbrush Liposculptor II® controllers, Airbrush®…