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October 2022, Volume 28, Number 4

Canada, Mexico

Latin America is a laggard in globalization. Trade is equivalent to 45 percent of regional GDP, lower than the average 55 percent for all countries, and only a third of Brazil’s GDP. Mexico is an exception, with trade almost 80 percent of GDP in 2020, up from 20 percent in 1980. Most Latin American exports are minerals or farm commodities rather than manufactured goods.

Cross-border connections in manufacturing are associated with more sophisticated industries and higher wages. Latin American free-trade agreements such as Mercosur are riddled with non-tariff barriers that limit freer trade and slow cross-border economic integration. The Central American Common Market, Andean Community of Nations, and Caribbean Community have similarly failed to deepen cross-border ties.

Canada. Canada’s Conservatives selected populist Pierre Poilievre as their leader in September 2022. The next federal election is expected in 2025, when the Liberals led by PM Justin Trudeau will seek to stay in power. In 2021 elections, the Conservatives and the Liberals each got a third of the vote, but the Liberals won 160 seats to 119 for the Conservatives,

Poilievre pledged to make Canada the “freest country in the world” by rolling back covid-related public health mandates and government regulations. The Conservatives are strongest in Alberta and Saskatchewan and the Liberals in the more populous provinces of Ontario, Quebec, and British Columbia. Most federal elections are decided by voters in the suburbs of Toronto and Vancouver.

Pope Francis made a six-day visit to Canada in July 2022 and apologized for the “evil committed by so many Christians against the indigenous peoples” at boarding schools. There were 130 schools for indigenous children between the 1870s and 1996, and Catholic orders operated two-thirds of them.

Some of the First Nation children were abused at the schools, and some of those who died were buried in unmarked graves; a discovery of unmarked graves at the Kamloops Indian Residential School in 2021 helped to prompt the Papal visit. The Canadian government and Protestant churches that operated schools have apologized for their roles in the removal of indigenous children from their families.

Three First Nations tribes with 7,500 members in Vancouver, the Sqauamish, Musqueam, and Tsleil-Waututh, cooperated to acquire 175 acres of prime land from the local government, drawing Canadian and Chinese investors who are helping the tribes to build the Senakw, Lelem, and Jericho projects. First Nations tribes in other Canadian cities, seeing the success in Vancouver, are pressing similar land exchanges.

Quebec has been the most Catholic province in Canada, with the church operating many of the province’s schools and hospitals until the quiet revolution of the 1960s made them secular. Quebec has been enacting laws to promote the dominance of the French language and culture. Bill 96 enacted in May 2022 requires immigrants to deal with government agencies only in French after six months in Quebec and requires most Quebec businesses to operate in French.

The 2021 census found that 76 percent of Canadians spoke English as their first official language and 21 percent spoke French. About 18 percent of all Canadians, and 46 percent of Quebec residents, are bilingual in English and French. About 12 percent of Canadian residents spoke a language other than English or French at home, led by Mandarin and Punjabi.

Canada’s Seasonal Agricultural Worker Program (SAWP) allows farmers who cannot recruit local workers to hire seasonal guest workers if they are paid the higher of three wages: the province's minimum wage, a standard seasonal agricultural rate set by the federal government and determined by the type of work being done, or the rate an employer would otherwise pay a Canadian worker doing the same job.

Almost 60,000 guest workers were employed in Canada in 2020 under the SAWP and the agricultural stream of the related TFWP. Of the 37,000 workers admitted via the SAWP in 2019, over 70 percent were from Mexico; 46 percent were in Ontario and 26 percent were in Quebec. Guatemalans were 60 percent of the 20,000 workers admitted under the agricultural stream of the TFWP

Jamaican labor minister Karl Samuda toured Canadian farms in August 2022 and said he was impressed with the good treatment of Jamaican SAWP workers. However, NGO Migrant Workers Alliance for Change countered that the SAWP permits the “systematic slavery” of foreign workers who are afraid to complain for fear of losing their jobs. Guest workers know that many of their countrymen would like to work in Canada, making them vulnerable to employer pressure to work fast and not complain.

Canada created an Open Work Permit for Vulnerable Workers in June 2019 that allows workers “experiencing or at risk of abuse” to change employers and remain in Canada. One study found that 60 percent of applicants received open permits in the first year of the program.

Mexico. President Andrés Manuel López Obrador visited President Biden in July 2022 after refusing to attend the Summit of the Americas in June 2022 in Los Angeles. In addition to the perennial issues of migration and drugs, the two presidents discussed AMLO’s efforts to nationalize Mexican oil and electricity production and distribution, which critics allege violates USMCA commitments.

The US government filed a formal complaint about AMLO’s energy policies in July 2022. If the US wins its case, it could impose tariffs on Mexican exports. AMLO calls the 2013 opening of Mexico’s energy sector to foreign investors “the theft of the century.” However, US officials in September 2022 warned the Mexican government during the High-Level Economic Dialogue that Mexico risked losing manufacturing jobs as US firms move production out of China. Instead of near-shoring jobs in Mexico, US firms may move jobs to southeast Asia if the conflict over energy widens and the US imposes tariffs in retaliation.

AMLO asked Biden to increase the number of visas available for Mexican and Central American temporary workers. AMLO wants the US to make more work visas available to Mexicans and Central Americans, especially as more Mexicans are encountered just inside the US border. The US wants Mexico to do more to crack down on fentanyl, the drug responsible for many US deaths.

AMLO is a fiscal conservative and did not expand government spending during covid lockdowns. One result was more poverty; 56 million people or 44 percent of Mexicans were in households with incomes below the poverty line in summer 2022. Some 5.2 million or a seventh of K-12 children dropped out of school, in part because hot meals at school were stopped.

AMLO remains popular, in part because his government replaced conditional cash transfer programs with direct grants. Instead of giving money only to poor mothers who kept their children in school, AMLO’s government gave money to all poor parents and the elderly. Economists decry the lack of targeting of cash aid.

Mexico has turned Tapachula, a city of some 350,000 people near the Guatemalan border, into a migrant containment point by refusing to allow migrants to leave without a Mexican asylum visa. Mexico has assigned 30,000 immigration agents and soldiers to manage migration over its southern border, and has over 70 migrant detention centers.

The Sinaloa and Jalisco drug cartels supply most of the pain-relieving fentanyl consumed in the US, replacing Chinese fentanyl. Fentanyl is much cheaper to make than heroin, only $200 per kg versus $6,000, and sometimes sold in pills as oxycodone. Over 108,000 US residents died of fentanyl overdoses in 2021.

Security in many areas of Mexico is worsening as gangs increase their influence and control. AMLO downplayed gang violence, converted the Federal Police into the National Guard, and promised “hugs, not bullets” to extirpate the root causes of violence. AMLO’s strategy has failed to improve security, and the lack of intelligence from the former Federal Police means that the government is often unable to anticipate and react to gang violence.

The US is the world’s major importer of fresh tomatoes, importing 1.9 million kg in 2021 or a quarter of the world’s total tomato imports; over 90 percent of US tomato imports are from Mexico. Germany is the second leading importer, accounting for almost 10 percent of global tomato imports of 8.3 million kg and importing half of its tomatoes from the Netherlands and a quarter from Spain. France is the third leading importer, and its leading source was Morocco. Mexico accounts for a quarter of the world’s tomato exports, followed by the Netherlands with 12 percent and Spain and Morocco, nine percent each.

Central America. The US pledged to tackle the root causes of migration by reducing corruption and providing aid so that residents could hope for economic opportunity at home. However, poverty, inequality, and impunity persist, encouraging ever-more Central Americans to emigrate.

Over 600,000 Guatemalans, Hondurans, Salvadorans and Nicaraguans were encountered by the Border Patrol in the first 10 months of 2022, an average of 2,000 a day. Critics say that the Biden administration tolerates corrupt Central Americans government in exchange for their help to reduce migration.

Caribbean. The US has five island territories: Puerto Rico with 3.3 million people, US Virgin Islands (87,000), Guam (154,000), the Northern Mariana Islands (47,000), and American Samoa (50,000). All are losing population. The Virgin Islands lost almost 20 percent of its residents between 2010 and 2020, while Puerto Rico lost over 10 percent of its residents.

Tax breaks such as Section 936 led to manufacturing jobs in the 1970s and 1980s, and reducing these incentives in the 1990s as China emerged as the world’s factory led to job losses and outmigration. Children often left the islands for education and did not return, and birth rates fell as populations aged.

Hurricanes Irma and Maria caused major damage to the Virgin Islands and Puerto Rico on September 20, 2017, leaving more than 3,000 dead and destroying much of the island’s electricity infrastructure. Since island residents can move to the mainland US, these natural disasters accelerated emigration and the downward economic spiral.

Hurricane Fiona in 2022 demonstrated that Puerto Rico has not hardened its infrastructure. High winds and up to 30 inches of rain in some places left half of PR residents without electricity. Despite almost $15 billion in federal aid and a new private sector entity LUMA, many PR residents remained without electricity a week after Fiona.

Barbados and many other Caribbean island nations are unable to repay the loans their governments have taken. Barbados has fewer than 300,000 people and owes $9 billion, giving it one of the world’s highest per capita debt levels.

There are many reasons why small island nations take on debt, including to recover from natural disasters. Much of the debt in Barbados was taken by government agencies for projects that were not completed due to fraud and corruption, leading to the election of PM Mia Mottley to clean up government finances and reduce the government’s debt by at least a third.

Mottley succeeded in persuading bond holders to reduce the country’s debt by a quarter in order to reduce the share of GDP going to pay interest on the debt to three percent. Mottley included a clause in the new bonds that allows Barbados to suspend debt payments if the country suffers from a natural disaster such as a hurricane. Some Caribbean countries want their former colonial masters to pay reparations to help them reduce accumulated debts.

The IMF counsels developing countries to keep government debts at less than 60 percent of GDP, hoping that economic growth will generate increasing government revenues over time to repay the debt. Many industrial countries have government debts that are more than 100 percent of GDP, and some economists urge the IMF to allow developing country governments to carry higher debt loads in order to cope with the adverse effects of climate change.

South America. Almost seven million Venezuelans or 20 percent of all Venezuelans have emigrated since 2013. Economic mismanagement reduced the number of jobs and wages.

There is a pink tide in Latin America, as voters elect leftist leaders who promise to expand the safety net and reduce economic inequality. The last leftist shift around 2000 was accompanied by rising commodity prices that allowed leftist governments to share extra revenue with the poor via cash transfer programs for children and pensions for the elderly. Latin American economies today are constrained by rising energy prices and slowing economic growth.

Chile in 1980 embraced private pensions, abolishing the pay-as-you-go system of having current workers support retirees and instead having workers contribute 10 percent of their earnings to privately managed pension funds that were expected to earn high returns via their investments so that workers would receive an average of 70 percent of their pre-retirement earnings.

Private pensions have been an unfulfilled promise. Retired workers receive an average of 30 percent of their pre-retirement earnings because employers did not contribute, and the 40 percent of retired Chileans who did not work enough to qualify for private pensions depend on the minimal government safety-net pension. High management fees erode pension assets, especially as funds compete for worker contributions.

The Chilean government in 2022 proposed to raise the minimum public pension of $200 a month to the $300 a month minimum wage and to use pay-as-you-go contributions from both employers and workers to fund public pensions. If this reform is adopted, privately managed pensions would become more like 401k options, providing extra retirement benefits.

Over 62 percent of Chile’s voters rejected a new 50,000-word constitution drafted by a largely leftist constituent assembly in the wake of 2019 protests in September 2022. The new constitution would have decentralized power and granted Mapuche and other indigenous groups who comprise about 12 percent of the population more power over the resources on their lands. Farmers opposed the new constitution, fearing that it would threaten private property and water rights.

Global production of bananas rose 70 percent between 2000 and 2020, keeping a lid on prices for the tropical fruit that is produced year-round. Supermarkets usually sign one-year contracts with banana suppliers that specify a price, and are purchasing more bananas from smaller producers with the introduction of refrigerated containers, eliminating the need for refrigerated ships.

Ecuador, the leading exporter of bananas, is debating whether to set a minimum price for a 40-pound box. Farmers (Fenabe) want the minimum price to be almost $8 a box, which would bring the FOB price to $11, well above the $8 FOB price of Costa Rican bananas. Ecuadoran exporters want a farm price of $6 to generate an FOB price of $8.

Sao Paulo, the largest city in the southern hemisphere with 22 million residents, is riven by inequality. Traffic jams have given Sao Paulo one of the largest fleets of private helicopters to transport the rich from their gated communities, while the poor often live outside these gated communities in informal housing.

Sao Paulo had two million residents in 1950, and expanded rapidly as migrants from rural areas and poorer northeastern states sought opportunity. Many begin their Sao Paulo journey living under elevated highways or viaducts or by squatting in nearby parks.


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