Since the 20th century, Mexico has gradually transitioned from an agricultural to an industrial economy. During the process, economic policy in Mexico shifted back and forth between President Cardenas’s leftist ‘self-sufficient’ model and President Aleman’s right-leaning ‘liberalized’ model. For instance, President Lazaro Cardenas implemented Import Substitution Industrialization (ISI), an economic policy that attempts to reduce its foreign economic dependency through the local production of industrialization products. Thus, he implemented high tariffs and import quotas on foreign products and nationalized the oil industry in 1938. However, President Miguel Aleman (1946 ~1952) later reversed Cardenas' ISI policy and encouraged privatization and liberalization of the Mexican economy. These shifts of economic models, however, ended and set Mexico's economy towards permanent economic liberalization since the signing of the North American Free Trade Agreement (NAFTA) in 1994.
The North American Free Trade Agreement (NAFTA) was a trilateral trade agreement signed by Mexico, the United States, and Canada in 1994. The agreement created a free trade zone among the three countries, eliminating all tariffs and quotas. As a result, it caused an explosion of trade and the integration of their economies. Since then, Mexico has seen greater economic output with tripled foreign direct investment (FDI). According to an article published by Kimberly Amadeo, the United States, Mexico’s largest trading partner, increased FDI in Mexico from $15.2 billion in 1993 to $104.4 billion in 2012. In 2018, this bilateral trade in goods and services totaled USD 678 billion.
This significant increase in economic output was possible mainly through the creation of Maquiladora Districts in Northern Mexico, where factories can import raw materials, duty and tariff-free, and export around the world without much restrictions. The district factories created millions of jobs for Mexicans, with a specific focus on agriculture, textile, and automobile manufacturing. Many American companies also have outsourced jobs to Mexico where labor costs are lower and environmental regulations are loose.
Consequently, NAFTA has caused Mexico to largely embrace free trade and economic globalization. It not only opened free trade in North America but also encouraged the Mexican economy to transition towards privatization of many nationalized industries, including major state-owned banking and telephone companies.
In addition, according to an article from the Council on Foreign Relations, “Mexican policymakers saw NAFTA as an opportunity to both accelerate and lock in these hard-won reforms of the Mexican economy. Mexico’s leaders reduced public debt, introduced a balanced-budget rule, stabilized inflation, and built up the country’s foreign reserves.”
Nevertheless, NAFTA also caused several socio-political problems in Mexico, such as widened income gap and cleavages between developed North and rural South as well as decreased competitiveness of the domestic agricultural industry. The controversies of NAFTA’s impact on Mexico continue; however, numerous studies, including the 2017 Congressional Research Service, have found that the agreement overall increased productivity and lowered consumer prices in Mexico.
In conclusion, NAFTA not only boosted industrialization in Mexico but also permanently set the course for Mexico’s economic liberalization as well as formed an unprecedented integration with the developed economies of the U.S. and Canada.
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