Contrary to what zero sum game proponents might argue, trade with Mexico is tied to US job growth.

For those that have been reviewing the numbers, the last decade or so has demonstrated that it is in the best interest of the United States to link US and Mexican production based on the economic principle of “comparative advantage” to enhance competitiveness and take advantage of the free trade agreements that have been put into place by both countries. Beyond costing US jobs, the partnership with Mexico has resulted in a sophisticated and complicated intertwining of resources and fates that has proven mutually beneficial and, in fact, has evidenced that trade with Mexico
is tied to US job growth. Here’s how.

Production Sharing

When two countries work together in a comparatively advantageous manner to produce a product, resource efficient “vertical specialization” and “production sharing” are often the result. In the case of Mexico and the US, Mexico provides an ideal location for cost-effective manufacturing. In doing so, it imports up to 40% of the intermediate manufactured inputs required to assemble market ready end products. These goods are then sold to the North American consumer market, and others around the world, facilitated by numerous free-trade agreements Mexico has signed with a wide range of geographically diverse countries. The result of combining resources in a way that results in low cost of ownership benefits both economic partners. As Mexico’s economy and industry grow, so does the amount of American manufactured intermediate goods that Mexico imports. This dynamic represents an important way in which trade with Mexico is tied to US job growth.

Not a Zero-Sum Game

In the early days of NAFTA, opponents argued as though signing the agreement would result in a zero-sum game in which one side lost and the other won. Yet numbers have indicated a far-more complex and positive outcome in which the US experiences export growth for every surge in Mexican manufacturing and overall GDP growth. While commenting on Mexico’s 5.4% GDP increase in 2010, current US president, Barack Obama noted that for “every $1 billion increase in exports supports more than 6,000 additional [US] jobs were created.” Furthermore, the Council on Foreign Relations noted that these export jobs that provide intermediate manufactured inputs for the production of end user products assembled in Mexico typically pay at least 15% more than US manufacturing jobs that are focused solely on domestic production.

This more nuanced understanding of how trade with Mexico is tied to US job growth flies in the face of the arguments made by detractors during the original debate surrounding NAFTA, in which opponents argued simplistically that exports meant job creation while imports meant job losses. On the contrary, in addition to increasing demand for US manufactured intermediate inputs correlating to increases in Mexican manufacturing, the US has also benefited from the strengthening of the Mexican economy by exporting to their increasing domestic consumer market, as well. This
is a clear sign that growth is a two way street when considering the Mexico-US partnership.

A Continuing Strategic Partnership

Far from being competitors, the collaboration between Mexico and the US is proving to be a lasting and beneficial one. Exports from the US into Mexico have grown well over 400% since the signing of NAFTA, providing a clear mechanism for ongoing job growth in the US. Judging from the numbers, this relationship will only strengthen job and economic growth in both countries. In 2013 alone, approximately $500 billion in cross border trade passed between the two NAFTA partners, propelling the economies of both countries’ economies forward. As the Mexican president, Enrique Peña Nieto
recently noted, “a million dollars of exports and imports crossing the border every minute on average can only mean one thing: continued prosperity and job creation for both partners.” Trade with Mexico is tied to US job growth.