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April 2018, Volume 24, Number 2

Nafta, Canada, Mexico

The sixth round of North American Free Trade Agreement renegotiation talks concluded in Montreal in January 2018 with Canada and Mexico rejecting US demands to end private arbitration panels to resolve trade disputes.

The US exported goods worth $1.5 trillion in 2016 and imported goods worth $2.2 trillion. Mexico and Canada took 47 percent of US exports and supplied 42 percent of US imports.

The seventh round of NAFTA talks took place in February-March 2018 in Mexico City with no breakthroughs, but the US Trade Representative in March 2018 said that Canada and Mexico had agreed to 50 percent US content in autos that could trade freely in NAFTA by including software and other components in what is counted as US content. Currently 62.5 percent of the components in autos must be made in Canada, Mexico and the US to trade freely.

Mexico in 2017 assembled 3.8 million cars and exported 82 percent of them. Mexico is expected to assemble four million cars in 2018. If 80 percent or 3.2 million are exported, 15 percent of cars sold in the US and 10 percent of those sold in Mexico would be assembled in Mexico.

There was an eighth round of talks in Washington DC in April 2018. President Trump exempted Canada and Mexico from new tariffs on aluminum and steel due to NAFTA renegotiations. Instead of 50 percent US content, the US proposed that cars made by workers whose wages were above a certain level trade freely in NAFTA countries.

President Trump in March 2018 asserted that the US had a trade deficit with Canada. The US exported goods and services to Canada worth $320 billion in 2016, and imported goods and services worth $308 billion, for a $12 billion US trade surplus. The US runs a deficit with Canada in trade in goods, but a bigger surplus in services.

Canada. Prime Minister Justin Trudeau sent some members of his Liberal Party to the US in winter 2018 to warn Haitians, Salvadorans, and others who will lose TPS in the US against traveling to Canada to apply for asylum. Over 20,000 foreigners in the US crossed the Canada-US border in 2017 and applied for asylum, including thousands of Haitians.

The northward flow continued at the rate of 1,500 a month in 2018, overwhelming Canada's Immigration and Refugee Board, which is supposed to make decisions on asylum applications within 60 days. The IRB granted asylum to 53 percent of the 2,500 applications it finalized in 2017.

Canadian officials warned foreigners in the US not to sell their possessions and drive to Canada. Migrant advocates say that Canada offers more avenues to legal residence than the US on non-asylum grounds, such as having a relative in the country who can sponsor newcomers.

Canada is officially a bilingual and multicultural society. Trudeau's government in February 2018 approved an additional C$23 million to bolster support for multiculturalism after a rise in hate crimes against Muslims. Some of the 125 far-right groups are in Quebec, where La Meute (The Wolf Pack) argues that the province's Christian and white identity is threatened by Muslim migrants.

Mexico. Mexican President Enrique Pena Nieto cancelled a planned meeting with President Trump in Washington DC in February 2018 because Trump refused to avoid discussion of the border wall.

The US deports almost 1,000 Mexicans a day. Some were educated in the US and do not know Spanish, and struggle to integrate into Mexico. The Mexican government's Somos Mexicanos greets returning Mexicans, but does not help returnees to find housing and jobs.

Over half of the fresh fruit (53 percent in 2016) and 31 percent of the fresh vegetables available to Americans are imported. In 1975, 23 percent of the fresh fruit and six percent of the fresh vegetables were imported. USDA predicts that 75 percent of fresh fruit and half of fresh vegetables will be imported in 2027, so that fresh fruit could approach the level of imports of fish, 80 percent of which is imported.

Almost half of US fresh fruit imports (46 percent in 2016), and three-fourths of fresh vegetable imports, are from Mexico. There are many reasons for the upsurge in imports, including immigrants who want familiar fruits and vegetables, Americans who want fresh produce year-round, and US firms encouraging foreigners to produce for the US market via investments and partnerships abroad. Foreign produce is as safe as US produce, and rules for organics and pesticides are the same.

Mexico's major comparative advantage in fresh vegetable production is climate, since the peak Mexican harvest season is during the winter months when only Florida is a major vegetable producer. Mexican tomato exports to the US rose from 1.2 billion pounds in 2000 to 3.2 billion pounds in 2016, while US fresh tomato production fell from 2.7 billion to 1.7 billion pounds.

Mexican farm exporters, often with the help of US partners, are expanding production of fresh fruits and vegetables, sometimes using protected culture or plastic-covered tunnels to extend growing and shipping seasons for berries and fresh vegetables. However, Mexican farmers who export are finding it more difficult to attract nearby seasonal workers, forcing them to look further afield, often in areas with poor indigenous residents. Protecting these indigenous migrant workers during recruitment, transport and employment in other areas is difficult.

Many exporters of fresh fruits and vegetables are required to abide by labor laws, including paying taxes on the wages of their workers. However, the health, pensions, and housing benefits financed by these taxes rarely benefit migrant farm workers, which tempts many farmers not to pay, since they often provide housing on their farms.

Third, many migrant workers settle near their ever-longer jobs. As they move into local cities, they expect services such as water and sewer that many local governments fail to provide. The result can be frustration, as the mix of farm and nonfarm workers in informal areas of cities loses the services they had on the farms where they worked but does not get services from cities.

The Los Angeles Times profiled San Juan de Abajo, Nayarit in April 2018, explaining that many residents left for Lincoln Heights in Los Angeles during the 1980s and 1990s, and that some are returning to San Juan de Abajo, which has become much richer due to tourism in nearby Puerto Vallarta. Couples who raised children in the US in rented apartments, and elected to retire in Mexico where they could afford houses, were profiled.

San Juan de Abajo doubled to 17,000 residents over the past decade, streets have been paved, and there are more modern houses. The story contrasted the lives of those who had American and Mexican dreams, and emphasized the trade offs, higher wages and crowded housing in Los Angeles, compared to lower wages and less intense work in Mexico. The legal children of Mexican migrants educated in the US are electing to stay in the US, forcing their parents to make living decisions that will affect interactions with grandchildren.

Mexico's presidential race officially opened March 31, 2018, with Andres Manuel Lopez Obrador, a three-time presidential candidate and former mayor of Mexico City holding a slight lead over the PAN?s Ricardo Anaya. Jose Antonio Meade Kuribrena of President Enrique Pena Nieto's Institutional Revolutionary Party is third.

There were 25,339 intentional homicides in Mexico in 2017, the most ever and a result attributed to the New Generation Jalisco Cartel (CJNG). Mexico's murder rate was 20 per 100,000 residents, compared with five in the US, as the CJNG spread across Mexico, displacing other drug gangs. The CJNG is led by Nemesio Oseguera or "El Mencho," Mexico's most-wanted man.

Puerto Rico. Puerto Rico had an unemployment rate of 11 percent in winter 2018, almost three times the four percent rate in the mainland US, prompting some mainland employers to recruit Puerto Rican workers to fill a wide variety of US jobs, from teachers to hotel workers.

Recovery in Puerto Rico is slow. Many major resorts remain closed for the 2017-18 season due to rebuilding, reducing the usual number of 60,000 jobs serving tourists. The power grid destroyed by Hurricane Maria in September 2017 has been repaired, but remains fragile, as demonstrated by blackouts in February 2018.

Even before Maria, many homeowners were in danger of losing their homes; a moratorium on foreclosures expires in May 2018. Over 500,000 Puerto Ricans moved to the mainland over the past decade, and another 200,000 are expected to leave in 2018, reducing the island's population to about three million. In the first five months after Maria, an average 25,000 Puerto Ricans a month moved to the mainland US.

Some investors who made millions in virtual currencies are moving to Puerto Rico, where there is no federal personal income tax and no capital gains tax. Some want to create Puertopia, a new city based on blockchain, the digital ledger that forms the basis of virtual currencies.

Puerto Rico unveiled plans to March 2018 to raise the island's minimum wage from $7.25 to $7.75 in 2019 and $8.25 in 2021. The Initiative to Reform the Labor Force would reduce sick leave from 12 to seven days and vacation to seven days, down from a maximum 15 days. The purpose of the Initiative is to move Puerto Rico toward mainland-style at-will employment.

Central Americans. There were 12 million Mexican-born US residents in 2015, including 5.6 million or almost half who were unauthorized.

The US had 1.4 million residents born in El Salvador, a million born in Guatemala, and 630,000 born in Honduras, a total of three million from the Northern Triangle countries. In 2014, there were 165,000 Mexican migrants arrivals, and a record 115,000 from the Northern Triangle countries; net Mexican migration peaked at 725,000 in 2000.

Over 55 percent of Northern Triangle migrants are unauthorized, compared with 25 percent of all migrants in the US: there were 750,000 unauthorized Salvadorans; 550,000 unauthorized Guatemalans; and 375,000 unauthorized Hondurans. Some 195,000 unauthorized Salvadorans and 57,000 unauthorized Hondurans are protected by TPS or DACA.

Northern Triangle migrants are seven percent of the 45 million foreign-born US residents. The upsurge in migration from Northern Triangle countries reflects poverty and lack of jobs and opportunity at home, gang violence and crime, and the ability to apply for asylum in the US and gain several years of US residence.

Total remittances from the US to Northern Triangle countries were $16 billion in 2016, including $4.6 billion and 17 percent of GDP in El Salvador, $7.5 billion and 11 percent of GDP in Guatemala, and $3.8 billion and 18 percent of GDP in Honduras.

Venezuela. Some three million Venezuelans, about 10 percent of all people born in the country, have emigrated, most in the past decade. Most moved to neighboring Columbia, but more are moving to Panama and Costa Rica.

Brazil. Brazil has a generous pension system, especially for public employees, some of whom can retire at 55 at their full salary, and their spouses can continue to receive pension payments after their death. Average wages are about $700 a month, but some retired public employees receive $5,000 to $7,000 a month, explaining why pension payments consume over 40 percent of the federal budget.

Brazil's 1988 constitution declared that everyone had a right to health care and retirement benefits, and the Worker's Party that came to power in 2003 broadened this pledge by extending pensions to rural workers who had never held formal jobs. In 2017, rural worker contributions to Social Security were $3 billion, while the government paid $36 billion in benefits. If current trends continue, Brazil may have a government debt exceeding 300 percent of GDP.

Japan currently is the most indebted major country, with government debt of 238 percent of GDP, followed by Greece with 159 percent; the US debt-to-GDP ratio is 107 percent.