Mexico's economic parasitism on the United States

The United States' relationship with Mexico has undergone a seismic shift over the past several decades.  In 1970, there were fewer than a million Mexican immigrants in the U.S., a number that had remained approximately constant since the early 20th century.  Then, starting in the early 1970s, the number of Mexican immigrants exploded, reaching a very conservatively estimated peak (aka almost assuredly a gross underestimate) of 13 million by 2007.

Some believe that the Mexican immigration population has declined by upwards of 9 percent during the past decade, but this is fraught with uncertainty.  In reality, the actual number of Mexican immigrants in the U.S. could be severalfold higher than "mainstream" estimates, and still increasing rather than decreasing.

Over this same period of time, U.S. trade relations with its southern neighbor changed drastically via implementation of the North American Free Trade Act (NAFTA), which was brought into force during 1994.  In the decade prior to NAFTA (which Ronald Reagan misguidedly proposed but never had to govern under), the U.S. enjoyed a reasonably healthy trade relationship with Mexico.  During Reagan's second term, the U.S. annual trade in goods deficits with Mexico were modest (between US $2.6 and $5.7 billion), and in Bush 41's term, there was a trend into trade surpluses (which reached a peak of US $5.4 billion in 1992).

And then it all fell apart. Following NAFTA coming into force, U.S. trade deficits with Mexico spiralled out of control. In 1994, the U.S. had a small trade surplus of $1.3 billion. By the next full year after NAFTA was implemented, this was immediately converted into a massive -- for the time -- trade deficit of US$16 billion. The trade deficits then continued to increase exponentially, reaching a record US$75 billion in 2007.

This trade imbalance has propped up Mexico's economy.  Since 1995, Mexico's trade surplus with the U.S. has averaged 5 percent of its GDP each year, hitting more than 7 percent in 2007.

The basic formula for calculating GDP involves the summation of consumer spending, industry investment, government spending, and – of course – the trade balance.  Absent the massive NAFTA-induced trade surplus gift from the U.S., the Mexican economy would have barely grown over the past two decades.  On the other side, the U.S. trade deficit with Mexico has averaged 0.33 percent of its GDP per year – hardly negligible – peaking in 2007 at 0.52 percent of GDP.

Even worse, during 2014, the U.S. trade deficit in goods with the rest of the world was more than US $727 billion, or 4.1 percent of GDP.  In 2006, it was a whopping 6 percent of GDP. Compare that to 1992, when the U.S. trade deficit with the world amounted to only 1.2 percent of GDP – still problematic, but nothing near the levels seen during the past 15 years.

If Americans are wondering where their economic growth has gone in recent years, it has evaporated into the nation's staggeringly high trade deficits with Mexico and a number of its other major trading partners.  Without the political will to correct the economic parasitism associated with those deficits, the historical years of 4-percent and higher annual growth rates are not coming back.

The United States' relationship with Mexico has undergone a seismic shift over the past several decades.  In 1970, there were fewer than a million Mexican immigrants in the U.S., a number that had remained approximately constant since the early 20th century.  Then, starting in the early 1970s, the number of Mexican immigrants exploded, reaching a very conservatively estimated peak (aka almost assuredly a gross underestimate) of 13 million by 2007.

Some believe that the Mexican immigration population has declined by upwards of 9 percent during the past decade, but this is fraught with uncertainty.  In reality, the actual number of Mexican immigrants in the U.S. could be severalfold higher than "mainstream" estimates, and still increasing rather than decreasing.

Over this same period of time, U.S. trade relations with its southern neighbor changed drastically via implementation of the North American Free Trade Act (NAFTA), which was brought into force during 1994.  In the decade prior to NAFTA (which Ronald Reagan misguidedly proposed but never had to govern under), the U.S. enjoyed a reasonably healthy trade relationship with Mexico.  During Reagan's second term, the U.S. annual trade in goods deficits with Mexico were modest (between US $2.6 and $5.7 billion), and in Bush 41's term, there was a trend into trade surpluses (which reached a peak of US $5.4 billion in 1992).

And then it all fell apart. Following NAFTA coming into force, U.S. trade deficits with Mexico spiralled out of control. In 1994, the U.S. had a small trade surplus of $1.3 billion. By the next full year after NAFTA was implemented, this was immediately converted into a massive -- for the time -- trade deficit of US$16 billion. The trade deficits then continued to increase exponentially, reaching a record US$75 billion in 2007.

This trade imbalance has propped up Mexico's economy.  Since 1995, Mexico's trade surplus with the U.S. has averaged 5 percent of its GDP each year, hitting more than 7 percent in 2007.

The basic formula for calculating GDP involves the summation of consumer spending, industry investment, government spending, and – of course – the trade balance.  Absent the massive NAFTA-induced trade surplus gift from the U.S., the Mexican economy would have barely grown over the past two decades.  On the other side, the U.S. trade deficit with Mexico has averaged 0.33 percent of its GDP per year – hardly negligible – peaking in 2007 at 0.52 percent of GDP.

Even worse, during 2014, the U.S. trade deficit in goods with the rest of the world was more than US $727 billion, or 4.1 percent of GDP.  In 2006, it was a whopping 6 percent of GDP. Compare that to 1992, when the U.S. trade deficit with the world amounted to only 1.2 percent of GDP – still problematic, but nothing near the levels seen during the past 15 years.

If Americans are wondering where their economic growth has gone in recent years, it has evaporated into the nation's staggeringly high trade deficits with Mexico and a number of its other major trading partners.  Without the political will to correct the economic parasitism associated with those deficits, the historical years of 4-percent and higher annual growth rates are not coming back.