When President George H.W. Bush and Mexico President Carlos Salinas de Gortari entered into negotiations to form a free trade agreement between the two nations in 1990, Canadian Prime Minster Mulroney quickly stepped in to request a trilateral agreement between the three nations. The Prime Minister was motivated out of concerns that if the United States established separate bilateral agreements with the two countries, Canada would become one of the spokes in a "hub and spoke" trade agreement model. In such a model, the hub would benefit most from international investments and preferential trade with all of the spokes. President Bush readily accepted such an arrangement because it played will with his overall "Enterprise for Americas Initiative" to create a "hemispheric free trade zone from Alaska to Argentina". On 1992, the three leaders signed an agreement to initiate trilateral negotiations.
In 1990, President Carlos Salinas de Gortari reached out to President George H.W. Bush with a proposal to negotiate a free trade agreement. Mexico was still reeling from a debt crisis in 1982 when they were unable to meet their foreign obligations leading to a decade marked by inflation and declining standard of living. Internal solutions to privatize state industries failed to help significantly, and Mexico was now forced to ease their protectionist policies that had been in place for over 50 years. In the 1980's, President Meguel de la Madrid began to tear down it's protectionist policies and remove trade barriers and tariffs to make the country more competitive. In November 1987, Mexico entered into a bilateral understanding on trade with the United States providing a legal framework to open up trade in areas such as steel, textiles and alcoholic beverages. Just months after President de Gortari proposed negotiations, President George H. W. Bush agreed, and together they signed a joint statement in support of negotiating a free trade agreement. President Bush and the Republicans saw this as a big political win.
In President Bush's 1991 State of the Union address, delivered that January, he gave a brief mention of these negotiations, suggesting that a free trade agreement with Mexico would help strengthen their economy and open up a free trade zone throughout the entire hemisphere. With these words, Bush was suggesting that strong Mexico was in our best interest for three major reasons. First, if Mexico's economy could be stabilized, it would raise both Mexican wages and employment, leading to a reduction in the flow of illegal immigrants. Second, Mexico was already the United States' third largest trading partner with a population of 81 million potential consumers of American goods. Finally, near and dear to President Bush's heart was the potential to shift the U.S. policy of aid to developing countries to one of trade with them. This was a key plank in Bush's "Enterprise for Americas Initiative" and could set the stage for free trade agreements with other Latin American countries like Columbia. The Enterprise for Americas Initiative was launched in 1990 to forge genuine partnerships in free market reform and encourage investment and some debt relief in Latin American countries and the Caribbean. NAFTA became a key component of the initiative that President Bush called a "bold new chapter in hemispheric relations -- one based on trade, not aid." On September 14, 1990 President Bush gave some lengthy remarks on this initiative. In his remarks, he described it as an initiative that for the first time brought together "three economic issues of greatest importance to Latin America -- trade, investment, and debt" into a single endeavor with a long-term objective of creating a hemispheric free trade zone from Alaska to Argentina". President Bush gave it his full backing, and said that by boosting trade and economic growth in our neighboring countries, it would be very good for the United States. Several months later, in January of 1991 Bush pointed back to this initiative when he gave a brief statement on the "Mexican free trade agreement" that was being put into place.
"And with a Mexican free trade agreement and our Enterprise for the Americas Initiative, we can help our partners strengthen their economies and move toward a free trade zone throughout this entire hemisphere."Just one month later, President Bush made a joint announcement with both Mexican President Salinas and Canadian Prime Minster Mulroney that the three countries would now pursue full trilateral negotiations to achieve a North American Free Trade Agreement (NAFTA). On June 12, 1991 just 12 months after Bush and Salinas made the initial announcement, trilateral negotiations were formally launched in Toronto. Shown above, is the NAFTA Initiating Ceremony in October 1992. Negotiations continued for 13 months until an agreement was reached. The NAFTA agreement was put into force in 1994. Canada had only modest trade with Mexico, but to sit by as the United States negotiated a bilateral free trade agreement with Mexico would have been been too risky. First of all, separate bilateral agreements would give the United States preferential access to both the Canadian and the Mexican markets, while Canada would have preferential access only the U.S. market. In this case, the United States would become the hub while Canada and Mexico would be spokes in the trade agreement. Aside from preferential access, such an agreement would entice international investors to put their money in the United States as the hub, rather than the individual spokes. In addition, without a trilateral agreement, Canada would lose out to the purchasing power off Mexico. In 1992 the Mexico GDP was only about 1/6 of Canada's, but their was the potential for tremendous growth in the purchasing power of Mexicans that Canada did not want to lose out on. In January of 1992, President Bush again shared a few words on the Free Trade agreement that was being worked out. He once again promised that we would benefit from both NAFTA and the Enterprise for the Americas Initiative. By removing tariffs and subsidies and opening up free trade, it would lead to "more good American jobs within our own hemisphere".
"We will work to break down the walls that stop world trade. We will work to open markets everywhere. And in our major trade negotiations, I will continue pushing to eliminate tariffs and subsidies that damage America's farmers and workers. And we'll get more good American jobs within our own hemisphere through the North American free trade agreement and through the Enterprise for the Americas Initiative."
In 1994, NAFTA went into effect and the impact on American jobs was debatable at best. By 1997, Economic Policy Institute reported that NAFTA reduced net exports to Mexico and led to the elimination of 227,663 jobs since 1993. They reported that this impacted women and minorities the hardest, stating that "Between 1993 and 1996, women lost 141,454 jobs to NAFTA, blacks lost 36,890 jobs, and Hispanics lost 22,520 jobs" (Rothstein and Scott, 1997). When you combine the jobs displaced by Canadian imports, the total jobs lost reported by Economic Policy Institute was an astounding 394,385. Proponents of NAFTA in 1997, argued that it was a futile exercise to try and assess NAFTA's impact on the loss of U.S. exports that caused the job losses. NAFTA was just one factor contributing to the economic recovery of Mexico since the 1980's. There were internal policy changes that led to trade liberalization and economic integration with America that perhaps played even bigger roles. A full analysis of the economic impact of NAFTA is well beyond the scope of this post, but is safe to say that NAFTA at best produced mixed results. It was neither proved to be a silver bullet that proponents had hoped for, nor did it lead to a collapse in the economy opponents predicted. Mexico saw it's peso collapse in December of 1994, and years later the U.S. and Canada suffered greatly from the recession of 2007-2009. Nevertheless, from Canada to Mexico including the United States, calls to renegotiate NAFTA were loud and clear. In Mexico, twice 100,000 people marched in the streets demanding that the agricultural provisions of NAFTA be revised, leading President Vicente Fox to request opening up the agreement in 2003. In 2008, a Rasmussen poll showed that 56% of Americans were in favor of renegotiating NAFTA. During the 2008 campaign, Barack Obama promised to fix NAFTA: "NAFTA’s shortcomings were evident when signed and we must now amend the agreement to fix them.” Eight years later in 2016, candidate Donald Trump went a step further, and said that he wouldn't mind scrapping NAFTA and making a separate deals with Mexico and Canada separately.
On August 27, 2018 Donald Trump announce that he plans to terminate NAFTA and establish a new agreement between the United States and Mexico. Mexican President Enrique Peña Nieto joined president Trump via speaker phone to congratulate both Trump and the negotiation team, and at least twice urged Canadian Prime Minister Justin Trudeau to quickly enter into the agreement. If history has anything to say about it, Mexico and Canada will find a way to quickly turn any separate bilateral agreements into a trilateral one. Neither of these countries wants to be a spoke in a "hub and spoke" trade agreement where the United States would become the benefactor of international investment and preferential access to goods of both Mexico and Canada. Of course, whether a new agreement will actually mean more jobs for Americans, is still yet unknown and I suspect, it may never be fully known.
References
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