By Bruce Lachney
There's been a lot of talk about the North American Free Trade Act (NAFTA.) I was never a fan of NAFTA. Not because Ross Perot could hear a sucking sound, or because there would be a flight of manufacturing jobs, but I viewed the agreement as a weak substitute for comprehensive economic assistance.
In the early 1990s, the Mexican economy was heating up. Banking and financial regulations had been all but eliminated (sounds vaguely similar to the future requiem of Dodd-Fran. Another story, another time.). The deregulation led to a massive lending boom. Capital inflows to Mexico ballooned. The Mexican stock market boomed; foreign investment looking for ever-increasing rate of returns.
Generally seen as a good thing, foreign investment in a deregulated environment has a downside. Just as easily as the capital flows in, it can flow out. Mexican banks lent money that could not be paid back. By 1994, the bubble burst and the peso was in freefall. By 1995, the Mexican economy retracted 6 percent. As you can imagine, illegal immigration into the U.S. surged.
The Mexican government borrowed $10 billion on a credit line of $50 billion from an international bailout fund. NAFTA, taking effect in 1994, was seen as longer-term financial stabilization element. The last thing anyone wanted was a failed state on the southern border.
Did it work? Sort of. As an economic stabilization program, NAFTA provided some geo-political stability, entwining the American and Mexican economies.
What about American job losses? Most economists agree it's in the 0.1 perent of the labor force – or about what we now create in jobs in a typical month. Frankly, more jobs are lost to microprocessors and Microsoft than to Mexico.
So how does all this figure into President Trump's dream of a new magnificent border wall? Unfortunately, trying to justify the need for a $25 billion wall doesn't square with economics. Though, for populists, border security is an easy platform to run on, the actual truth is more complicated.
Illegal immigration from Mexico is today a net zero, meaning just as many illegals cross over to the U.S. as cross back. Some of this is due to enhanced border patrols, but most is pure economics. Why seek illegal employment in the U.S. when you can find legal employment in Mexico? And most forget illegals from Mexico make up less than 50 percent of those illegally in this country.
In simple economic terms, perversely, if you really want to promote increased illegal immigration into the U.S., all you need to do is to help the Mexican economy crash,…like squeezing the Mexicans over NAFTA, or slapping an import (border) tax on Mexican goods, or brow-beating American companies to move their operations back.
Remembering the lessons of the 1990s would be fortuitous. People, like capital equity, flow to the places where they will be most successful. Facilitating the Mexican economy to grow and prosper will provide more of a protection from illegal immigration than any silly 30-foot wall. And besides, I'm pretty sure the resourceful Mexicans will be able to build a 31-foot ladder.
Bruce Lachney is an Eatonville-area resident, a former Marine Corps pilot, and currently a member of the Clover Park Technical College Board of Trustees.
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