Trump Nafta Win May Rest on Helping Mexican Workers Get a Raise

By: | at 04:00 AM | International Trade  

President Donald Trump has gone after Mexicans for stealing U.S. jobs. Now he’s trying to get workers south of the border a pay raise.

It would be in America’s self-interest. Trump wants to stop U.S. companies from moving to Mexico, where workers earn a quarter of what U.S. counterparts make. Closing that gap might convince American firms to stay, which is why U.S. negotiators will push for higher wages and better conditions for Mexican workers when negotiations on revising the North American Free Trade Agreement get underway next week.

With Mexican wages the lowest among the world’s more developed nations, labor reform is a juicy target to meet Trump’s demand to get a better deal for U.S. workers or walk away from the 1994 pact. While Mexican officials are willing to make some changes, jobs and wages will become a sticking point if Trump goes too far and uses the issue as a blunt tool to curb last year’s $64 billion trade deficit in goods. Mexico argues that its lower cost of production has competitive benefits for all of North America.

The Trump administration “will push hard, and I think rightly so, on labor standards,” said Gerardo Otero, a professor at Canada’s Simon Fraser University who has published more than 100 articles or books on Mexico and Latin America. “If Mexican prices increase due to wage increases, there might be a chance of closing the gap.”

Nafta originally included a side agreement to protect workers’ rights that was never formally incorporated in the deal. The Trump administration said last month that bringing labor provisions into the core of the agreement is a priority. The U.S. already has a head start on the issue, with Mexico agreeing on labor reforms as part of the Trans-Pacific Partnership pact, which Trump withdrew from shortly after taking office. Commerce Secretary Wilbur Ross said in a May interview the TPP shift is a good starting point for the U.S. in Nafta talks.

“It has nothing to lose by taking TPP as a point of departure and negotiating from there,” said Hugo Perezcano Diaz, former chief of trade practices at Mexico’s Economy Ministry and a deputy director at the Centre for International Governance Innovation in Waterloo, Ontario.

While tough labor rules and talk of cutting the trade deficit could be a short-term political win for Trump, the real boost to the U.S. would be deeper changes that make all three nations more competitive, he said.

Trillion-Dollar Trade

The Nafta treaty covers more than $1 trillion of annual trade, which has more than tripled since 1993. Three-way talks will kick-off Aug. 16 to Aug. 20 in Washington. The pressure on Mexico may also come from the Canadian corner: Prime Minister Justin Trudeau is touting “progressive” free trade and named the head of a major labor group to his team of advisers.

The three governments have signaled a desire to finish talks before elections next year in Mexico and the U.S, when it’ll become more tricky politically. That’s a tough deadline to raise standards and strengthen overall trade, said Christopher Wilson, deputy director of the Mexico Institute at the Woodrow Wilson International Center for Scholars. He’s written a paper describing existing labor and environment side deals as “essentially toothless.”

“They are really talking about imposing on Mexico tougher regulations on labor and the environment so that U.S. companies don’t go to Mexico,” he said from Washington. “Market access is the red line for Mexico.”

Mexican President Enrique Pena Nieto may struggle to deliver bigger changes in a nation with weak legal protections for workers and a large informal economy dominated by low-paying jobs. Mexico can accept an updated Nafta labor chapter in line with the rules agreed in the TPP, which only requires nations to enforce their own domestic laws, Economy Minister Ildefonso Guajardo said last month.

Francisco de Rosenzweig, Mexico’s lead TPP negotiator who now works for the law firm White & Case, said the country would refuse any U.S. attempt to legislate wage levels. Many workers in advanced manufacturing can earn many times the national minimum wage of 80 pesos a day, or $4.50, he said, while lower wages elsewhere often reflect local conditions in the less-developed southern parts of the country.

Whatever the outcome of Nafta talks, Mexico is already strengthening labor rules, while costs keep rising elsewhere, said Martin Wildeboer, chairman of Ontario-based Martinrea International Inc. The company is a parts supplier for car makers, including Ford Motor Co., and he spoke from Toronto, where the provincial government is proposing to hike minimum wages by 32 percent.

While Trump’s approach creates tension, the end result could be a big improvement to a treaty that over two decades never resolved fears about a race to the bottom, said Diaz at the Centre for International Governance Innovation. “This is a very good opportunity for the three countries on how to improve Nafta,” he said. “If Trump succeeds in upgrading Nafta, we might go back and say that was ultimately to everybody’s advantage.”


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