When President-elect Trump talks about scrapping the North American Free Trade Agreement (NAFTA), his argument rests on the notion that the agreement is one of the main culprits of job loss in the states. American companies, critics argue, have used NAFTA to send manufacturing jobs to Mexico—where labor is cheaper—leaving domestic workers unemployed. It’s true that companies have been enticed to send jobs abroad—but often this argument misses the fact that as some American firms moved work across the border, there’s also been reciprocity. Now, millions of American jobs are dependent on trade with Mexico, and Mexican corporations have created thousands of jobs in the U.S.
New research from the Mexico Institute at the Wilson Center, a nonpartisan think tank based in Washington, D.C., found that trade with Mexico creates approximately 4.9 million jobs in the United States. In other words, one out of 29 American jobs depends on preserving an economic relationship with the U.S.’s southern neighbor. Researchers came up with this 4.9 million figure by calculating three economic shifts that would likely occur if trade with Mexico ended: the number of American jobs that are involved in producing exports to Mexico, which would be lost; the number of jobs that would return to the United States to produce the previously imported goods; and the number of jobs that would disappear if the money American consumers and companies saved from buying lower-cost imports were gone.
The impact of those first two shifts will mostly offset each other—with many of the jobs lost in Mexican production returning to the U.S. or moving elsewhere—meaning that most of the 4.9 million jobs lost by gutting NAFTA are those that are tangentially related to trade with Mexico, says Christopher Wilson, deputy director of the Mexico Institute, and author of the report. The model they used— called the Global Trade Analysis Project—analyzed national data on employment, production, imports, and exports in 56 industries. It found that the vast majority of jobs that tangentially depend on trade with Mexico are in the service sector, such as retail, finance, and healthcare. For example, when an American consumer buys a washing machine made in Mexico, he or she can save about $100 since it’s cheaper for American companies to manufacture appliances in Mexico than in the United States. The consumer can then spend that $100 elsewhere, maybe at a restaurant or a clothing store. That money—which is spread across the economy instead of spent on a single purchase—helps keeps people employed in other sectors, according to the report. Though it’s hard for economists to know exactly where consumers spend the extra money that they save by buying cheaper goods, Wilson and researchers at Purdue University calculated the impact at an aggregate level.
The fact that so many jobs would disappear if the United States stopped trading with Mexico shows how much the economies of both countries have become dependent on one another, says Wilson. “There is no longer such a thing as an American-made car, a Mexican-made car, or a Canadian-made car—the car is made across borders,” he says.
The jobs that are dependent on Mexico are not spread evenly across the United States, most are located in California, Texas, New York, and Florida. And while economists tend to view global trade as good for the American economy overall, they also acknowledge that it has hurt some American workers, particularly those in the Rust Belt without college degrees, whose well-paid manufacturing jobs have migrated abroad.
While the ability of American companies to move jobs to Mexico has certainly had both a positive and negative impact, little attention has been paid to the number of Mexican corporations that have opened operations in the United States—creating more than 120,000 jobs. To be sure, American companies create far more jobs in Mexico, but the relationship between the economies is still more symbiotic than is sometimes portrayed.
Take the example of Mexico City-based Bimbo, the world’s largest maker of baked goods. Thanks to the economic relationship between the two countries, Bimbo has opened more than 60 bakeries in the United States, which employ more than 21,000 people. The company owns several recognizable brands found in American supermarkets: Sara Lee desserts, Entenmann’s cakes, Arnold bread, Ball Park hotdogs, and Thomas’ bagels. Other big Mexican employers in the United States include cement-maker Cemex and Mission Foods, both of which employ American workers.
Al Zapanta, head of the U.S-Mexico Chamber of Commerce, says that the future relationship between the two countries is more complex than one moving jobs north and the other moving jobs south. American and Mexican companies are increasingly creating joint ventures, with each player responsible for different parts of the supply chain. Zapanta points out that many fruit and vegetable farms in Mexico are now co-owned by American companies, and workers in both countries are responsible for carrying out different tasks, whether that’s growing, harvesting, sorting, transporting, and distributing the produce that ends up in American supermarkets. “What we are doing is mixing and matching marketplaces and labor forces,” says Zapanta, who says he’s been talking with President-elect Donald Trump’s transition team about ways to improve NAFTA.
Most economists believe that trade deals always create winners and losers. The question then is who will wind up profiting or suffering from the new administration’s policies. Zapanta is optimistic that the new administration will renegotiate the trade deal to better reflect the complexities of the modern economy, which is more integrated than ever before. He cited Trump’s book, The Art of the Deal, as a glimpse of what could happen with trade between both countries. The key takeaway from the book—and for Trump as president—he says, is making sure that all sides at the negotiating table walk away feeling like they won.