Texas-Mexico Center Research Fellow Raymond Robertson, Chair in Economics and Government at the Bush School, conducted a study to determine if Mexican workers are substitutes or complements to U.S. workers. We asked him about his findings.
TM: What was the most interesting result of your study?
RR: I think the most interesting thing was the fact that the results suggest the opposite of what most people think about the U.S. and Mexico. Most people think that the U.S. and Mexico are competing economies, they’re competing for jobs, they’re competing for whatever, and my results suggest that they’re not. They’re actually part of a single, cooperative unit, which is pretty surprising.
What is the source of the misconception?
I think a lot of it has to do with the fact that before NAFTA, we actually were competing with Mexico. Before there was a real fence of jobs that were leaving to Mexico in the early ‘90s, but NAFTA has now resulted in a restructuring of production to incorporate Mexico into a North American production chain, or a value chain. That change has not been fully appreciated either by policymakers or even the public.
Can you explain what you mean by a single production unit?
Most of modern production is basically the results of a bunch of steps. So there’s raw materials and there’s intermediate parts and there’s more parts and then there’s assembly and then final sales. What’s happened now is that we’ve divided up the production of different parts across the countries so that, Mexico produces some parts and the United States produces other parts and then they all come together to produce a single, final good. So we’re actually producing much of the same thing.
So we’re working together to build products rather than trade products?
Exactly. And the things that we’re trading mostly now are parts.
In your policy brief you recommend implementing policies that facilitate trade. Do you think that was accomplished with the ‘new NAFTA,’ the USMCA?
Yes and no. I think that there were several things in the USMCA that are going to help, like, updating it to incorporate e-commerce and services. I think those were very valuable. I’m not sure that changing domestic content requirements was a move toward further integration. It could be, we’ll see, but I don’t think so. I’m also a little bit worried about the wage provision requiring a certain amount of production to be produced at $15 or $16 an hour. I think that might shut out Mexico, in some ways, which would reduce integration. So, I think it’s not clear that all of the agreement moves us in that direction.
If integration is reduced, does that take away from your findings that we’re partners, not competitors?
What my results suggest is that we have a single production unit, and then with the new provisions, I think the danger is that we’re throwing sand into the gears. We have this pretty well-oiled machine and we’re going to throw sand in there, which is going to potentially reduce employment on both sides of the border.
So either Texas and Mexico can be successful together or less successful together?
That’s right. I think by less successful we mean less competitive or more competitive relative to the rest of the world. We need to realize that we’re competing with China, we’re competing with Europe, we’re competing with South East Asia, and having integration with Mexico and Canada makes us stronger relative to the rest of the world.
What do you want to accomplish with this study? Who needs to read it?
All of Congress is going to have to consider the USMCA coming into the next calendar year. Congress still has to improve it, so I’m hoping that this study is going to be impactful for Congress as they go forward. And that’s why I’m working overtime to get the draft finished.