For this month’s spotlight the SMU Tower Center interviewed Fellow Jesus Canas, a senior business economist at the Federal Reserve Bank of Dallas. Canas analyzes regional economic growth, specializing on the border economy. He talked to us about the NAFTA renegotiation and the looming presidential election in Mexico.
As an economist who studies the border economy, what’s your reaction to the current trade rhetoric?
Well, shock. As you know, trade is quite important to Texas. Close to one million jobs depend on exports. We have this really close relationship with Mexico’s manufacturing industry, and we benefit a lot from this cross-border trade, and the immediate positive impact is along the Texas-Mexico border. In many Texas border cities unemployment has dropped since NAFTA, and per-capita income has been growing.
We have done research measuring manufacturing activity on the Mexican side and Texas side. We found that when manufacturing production goes up 10 percent in Mexico, let’s say in Ciudad Juarez across from El Paso, employment in El Paso goes up close to 3 percent. It goes up close to 6 percent in McAllen, close to 2 percent in Brownsville, and close to 5 percent in Laredo. So that’s how important it is.
About 78 percent of US land trade, we’re talking about $250 billion, crosses via the Texas border fence. So just imagine how important those trade flows are for stability in border cities. If the current trade environment between Mexico and the U.S. gets less efficient, we will see the impact immediately across the Texas border, but eventually we will see the impact inside the state too. Uncertainty is high right now.
What needs to happen with the NAFTA renegotiation?
I think we need more NAFTA not less NAFTA. There’s opportunity for improvement. This really was negotiated 30 some years ago, at a time we didn’t have internet and other technologies, so perhaps we can include some of that, and also include the energy industry. We didn’t have any agreements regarding energy, so we can look at the energy sector, or foreign investment—lots of opportunities for improvement of the efficiency of the treaty. That’s what I hope happens, not the opposite.
Is that what you think is going to happen? More NAFTA?
Well, I don’t know. That’s the big question, right? The problem we are facing with this trade rhetoric is uncertainty because we don’t know what’s going on. Or we might think we know something and then the next day we have some kind of ad hoc announcement, and then what we’re prepared for doesn’t happen and they go back to the negotiating table, and it looks like they’re progressing on this front but they’re not, and then the next day or the next week or the next month you get an unexpected announcement.
So, who knows what’s going on. But again, when I read, and this is public information, but what I can get from what I read from the different rounds of negotiations, and the one that is coming in June, is that expectations are high to get some sort of agreement that the three countries will agree on. Unfortunately, we have elections coming up in Mexico in July and the midterm elections in the U.S. in November, so I don’t know how much will get done before the elections. I don’t if they’ll do it on time, and I don’t know what will happen after the elections. It’s a big question mark right now.
But what I can read from the media and the different negotiation rounds, it looks like optimism is high, but who knows?
Mexico has some interesting candidates for the upcoming election in July. What’s at stake with a new president coming to office?
It looks like the U.S.—the U.S. is at stake. It’s amazing. This rhetoric is “in” in the world right now, like protectionism, “my country first,” and things like that, and that’s exactly what at least one of the candidates is saying in Mexico. Right now, we have three main candidates.
One is Andrés Manuel López Obrador, they call him AMLO, and he’s from the left; they categorize him as the hard left. I would say his positions are similar to what Bernie Sanders would say in his campaign—those kinds of arguments.
And then we have the right teamed up with the soft left–the PAN, and PRD. The PRD was AMLO’s original party but then he resigned and created his own, and he dragged lots of supporters of the PRD with him. What was left of the PRD then teamed up with the PAN, and so you have that front backing Ricardo Anaya. And it looks like it’s right center.
Then we have the PRI candidate, Jose Antonio Meade, who is supposed to be in the center. But apparently the fight is in between the hard left (Andrés Manuel) and the front that the PAN and PRD put together (Anaya). Who knows? Andrés Manuel is pitching to everyone who has failed, who has been left behind. So it’s exactly what happened in the U.S. So in the U.S. we have this group or this region called the Rust Belt, which was the most affected by globalization. Mexico’s rust belt is the southwest. In Mexico, agriculture was hit hardest. So, they consolidated into these big ag companies similar as in the U.S., but all these people were left behind and they radicalized, and have been radicalizing over the last 20 years, and they are the base of Andrés Manuel now. So, he’s playing the same script that was played in the U.S.
In addition to that, this administration (Enrique Peña Nieto, PRI) went through a lot of corruption scandals, particularly at the governorship level. Seven governors from the PRI are on the run because they were accused of fraud and corruption, and even drug dealing and things like that. So they are on the run and people from those states are really mad about what happened in their own state even though they are not the ones who were left behind. They just want to punish the PRI, so the question is, for whom are they going to vote? Andrés Manuel? Or Anaya? Andrés Manuel has a 10-point lead over Anaya, and a 20-point lead over Meade from the PRI. I don’t know what’s going to happen. Interesting times right now.