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Trump’s Flawed Logic Regarding US-Mexico Relations

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© Ruskpp

February 02, 2017 09:11 EDT

The Trump administration’s proposed Mexico policies regarding immigration and trade will make America’s fears a reality.

Minutes after descending from the golden escalator at Trump Tower, Donald Trump fired the first salvo at what would eventually become one of his favorite electoral targets during his presidential campaign: Mexico. Trump attacked the southern neighbor from two different fronts: immigration and trade. In his first speech as a presidential candidate he stated clearly his adversarial vision of Mexico:

“When do we beat Mexico at the border? They’re laughing at us, at our stupidity. And now they are beating us economically. They are not our friend, believe me. But they’re killing us economically. The US has become a dumping ground for everybody else’s problems… When Mexico sends its people, they’re not sending their best… They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists.”

On the surface, these two issues—immigration and trade—could seem unrelated. In reality, these are two policy areas that are heavily intertwined and, along with national security, are the main pillars of one of the United States’ most important relations with a foreign nation.


The focus on immigration, particularly undocumented, soon gave birth to one of Trump’s greatest campaign devices: the building of a wall between the US and Mexico. Taking the issue further, not only was he advocating that the wall be built, but also proposed that Mexico pays for it. “Build That Wall” became a campaign rallying cry in subsequent months and one of the key promises of the Republican candidate.

The purpose of the wall came along with the promise to “secure the border” and create a “deportation force” to remove the estimated 11 million illegal immigrants living in the US. Since about half of the undocumented US population is thought to come from Mexico, this narrative quickly added toxicity to the rhetoric that the Trump campaign had toward Mexico.

The electoral benefits of such a stance were evident, as hard talk on immigration remains one of the best ways to mobilize the conservative base. Moreover, adding trade and NAFTA to the rhetoric allowed Trump to break a traditional democratic stronghold and gain support of middle-class workers whose jobs prospects might have suffered due to globalization.

This perception of a southern border being overrun by undocumented people, however, is very different from what the numbers say. The Pew Research center recently reported that more Mexicans are leaving the country than coming in, and the US Border patrol statistics show that apprehensions at the border, a metric used to calculate undocumented crossings, are currently at a 40-year low. In other words, the facts regarding immigration from Mexico do not match Trump’s campaign rhetoric.

Among the most important reasons for this shift is the fact that Mexican population growth has decreased considerably. In 1970, Mexican fertility rate was almost seven births per woman, one of the world’s highest. A couple decades later, about the time where the population born in the 1970s reached adulthood, the US experienced a peak in undocumented immigration from Mexico. The Mexican fertility rate since 2000 has been just above two births per woman and declining. In short, there are simply not enough young Mexican people for the migration levels to return to the levels of the 1990s.

Immigration is usually composed of both “push” and “pull” factors. The example of high fertility rates combined with the macroeconomic mismanagement Mexico experienced in the 1980s and 1990s were obvious “push” factors that led to more Mexican migration to the US. Since the late 1990s, macroeconomic management in Mexico has been prudent and has not experienced any self-inflicted recessions.

Economic growth, while not at the country’s full economic potential, has been consistent and allowed the economy to create enough jobs and stability to produce a “pull” effect that allowed Mexicans to have other options rather than immigrating to the US. The impact of North American Free Trade Agreement (NAFTA) and the opening of the Mexican economy to the world were key components of this new Mexican reality.

Bilateral Trade

Regarding trade, Trump’s statement that Mexico was “killing us economically” was the preamble of another great campaign device: the desire to renegotiate or repeal NAFTA. Early in the campaign, NAFTA became one of Trump’s favorite targets, often referring to it as the “worst trade deal ever.”

Along with China, Mexico—through NAFTA—was blamed for the loss of thousands, if not millions, of US jobs, particularly in manufacturing. Through this anti-free trade rhetoric, Trump was able to tap into the anger of certain strata of the population, particularly those in the manufacturing sector, who saw their factories close and move abroad over the last few decades. This allowed him to break the so called Democratic “blue wall” and capture the support of people in the rust belt and key states like Ohio and Wisconsin that paved the way for his presidency. Mexico, in the eyes of some Trump supporters, is not only a source of undocumented immigration, but also a country that is taking jobs away from the US.

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According to the US Census Bureau, in the first 11 months of 2016 trade between Mexico and the US reached $482 billion dollars, making Mexico the third largest US trading partner and second largest destination for US exports in the world. As a matter of perspective, during the stated period, Mexico bought more US products than China, Japan and the United Kingdom—the third, fourth and fifth export destinations for the US, combined.

One of Trump’s main arguments to support his animosity toward Mexico and China is the current trade deficit the US holds with these countries. The US Census Bureau data shows that while the trade deficit with China is by far the greatest ($319 billion), the deficit with Mexico is much smaller ($58.8 billion) and similar to other US trade deficits with Germany ($59.6 billion) and Japan ($62.4 billion). It goes without saying that none of these three countries are part of NAFTA.

Deficits cannot be solely attributed to free trade agreements. One explanation for President Trump’s focus on China and Mexico could be outsourcing. Companies are not known to move US jobs to Germany, Canada and Japan, but there is no denying that this has occurred to some extent with China and Mexico.

However, placing outsourcing to China and Mexico in the same category is a gross misunderstanding of current international trade trends and the benefits of regional integrated supply chains. When a company moves jobs to China, it takes the vast majority of the production chain with it. This makes sense from a geographical standpoint, since production requires proximity to the supply chain.

The case of Mexico is very different. As a general rule, companies moved only part of their production to Mexico. In most cases, it was the low-skilled, labor-intensive portions of the production process. This allowed companies to keep higher-skilled jobs in the US by leveraging the cheaper labor in Mexico to produce parts and other necessary components of production. In other words, by moving some low-skill jobs to Mexico, manufacturers are allowed to keep part of their production in the US as opposed to sending the whole production chain to China.

Prosperity in Mexico has several benefits for the US: less undocumented migration, increased security and higher demand for US products. It is hard to find a better example of a win-win-win.

The results are quite clear. According to the Wilson Center, a Chinese export has about 3-4% of US made contents/inputs, while a Mexican export product has, on average, 40% of US made content/inputs. Out of the $270 billion Mexican exports to the US, $108 billion—around 40%—eventually end up back in US companies due to the benefits of supply chain integration.

As an example, the number one US import and export with Mexico is the automobile. Due to supply chain integration, cars cross the border multiple times during production. One can argue that there is no such thing as a US, Mexican or Canadian-made automobile but rather a North American one. In the words of President John F. Kennedy: “A rising tide lifts all boats.”

President Trump continuously boasts his business acumen and credentials. Is it good business to ostracize your second largest customer? Furthermore, supply chain integration with Mexico makes the US and its exports more competitive worldwide. The US Chamber of Commerce states that trade with Mexico supports up to six million US jobs. A high percentage of these jobs will be put in jeopardy if relations are meddled with. Is it wise to trade those jobs for the estimated 800,000 low-skilled and low-paid jobs that the US lost to Mexico?

Unintended Consequences

As stated, thinking of immigration and trade policy as two different issues is a mistake. Along with national security, these are deeply intertwined and one must be careful to act without considering the implications across all three realms.

Unfortunately, so far this is what Trump’s policy toward Mexico appears to be doing. The historical low levels of apprehension at the border, not seen since 1973, hardly justify building a $25-billion wall on the border. Indicating that NAFTA is the main culprit of the loss of manufacturing jobs in the US without mentioning advances and growth in robotics used in manufacturing only tells a small part of the story.

Mexico has made tremendous strides during the last decade toward creating economic incentives to keep its citizens within its borders. A large part of these economic incentives is derived from the burgeoning trade with the US. In 1993, the year before NAFTA was implemented, US-Mexico trade was $81 billion dollars, according to the US Census Bureau. In comparison, through November 2016, yearly total trade between the countries reached more than $481 billion dollars. Mexico made the transition from a natural resource-based economy into one based increasingly on complex manufacturing.

Prosperity in Mexico has several benefits for the US: less undocumented migration, increased security and higher demand for US products. It is hard to find a better example of a win-win-win.

The frontal attack of the Trump administration on this equilibrium, particularly NAFTA—and hence the stability of Mexico—could have dire consequences for both countries. A withdrawal from NAFTA could prove disastrous in the short term for Mexico as 80% of its exports are destined for the US. Mexico could easily end up in a steep recession that could cost millions of Mexicans their jobs and sources of income. It is easy to imagine the consequences of what would happen if up to a million maquiladora workers right across the US-Mexico border suddenly find themselves unemployed. If history serves as guide, Mexico will see a spike in organized crime activity and migration to the US.

While the argument has been that current undocumented immigration numbers do not justify President Trump’s focus and escalation on the border, his nationalistic vision on trade could end up destabilizing Mexico to the point where people begin migrating north in numbers large enough to make the need for a wall a reality. His proposed policies are, therefore, counterproductive for both the US and Mexico as they could deteriorate this delicate balance to the point that his pessimistic and largely unsupported by facts vision becomes a reality.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

Photo Credit: Ruskpp

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