On July 1, 2020, amidst a global environment of pandemic-fueled economic and political uncertainty, the U.S.-Mexico-Canada Agreement (USMCA) officially replaced the 1994 North American Free Trade Agreement (NAFTA). This transition illustrates the ever-evolving nature of multilateral trade relations between the three regional counterparts, which have had significant impacts on formal labor sectors and Foreign Direct Investment (FDI) flows in each of the participating countries. While the formal economic implications of treaties such as NAFTA and the USMCA are well-researched and highly publicized, there remains a notable knowledge gap in regard to the impact they have on the informal economies of these countries.
The neoliberal foundations upon which NAFTA was created set a regional precedent of the cross-border free flow of legal goods, accompanied by the restructuring and exacerbation of the illegal goods flow, namely in the form of drugs and guns. This domino effect has had severe consequences, especially for those in Mexico whose lives have become increasingly impacted by the influence and violence of prominent cartels – an implication that is frequently overlooked by U.S.-centric interpretations of NAFTA.
Background of NAFTA in Mexico
NAFTA was originally touted as the institutional marker of Mexico’s integration into the superpower-dominated economic order, specifically due to promises of increased FDI inflows, an expanding job market, and opportunities for national prosperity. However, the reality has been markedly different. While the agreement did objectively provide an initial boost to all three participating economies, it has also been widely criticized as primarily serving U.S. and Canadian interests, while subjecting Mexico to policies that asymmetrically affected economic production in rural areas.
In his prevailing critiques of NAFTA before its renegotiation, U.S. President Donald Trump often cited the “loss” of American factory jobs to Mexico. What this interpretation neglects to consider is that these factory jobs mostly exist in the context of tariff-free maquiladoras concentrated in the north of Mexico, while the labor sector in southern Mexico has been greatly eroded due to NAFTA-integrated initiatives. The agreement promoted privatization schemes that were entirely inconsiderate of the existing agrarian economies that operated under the communal ejido system in rural southern regions.
In order to conform with the capitalist framework of the NAFTA economic order, Mexico abolished the ejido system, along with its programs of government subsidies and price regulation for farmers and the rural poor. This caused Mexico to become unprecedentedly dependent on cheap U.S. food products, leaving millions of rural workers unemployed and entirely disenfranchised by NAFTA programs. This is where the cartels stepped in, emboldened not only by the increase in cross-border goods flow, but also by the readily available workforce left institutionally excluded by neoliberal schemes, whose only real prospects for earning a viable income lay in the illicit sector.
Drugs for Guns: A Deadly Tradeoff
With the implementation of free market reforms under NAFTA came the elimination of tariffs on goods being traded across North America. In practice, this led to an additional 1.5 million freight trucks crossing the U.S.-Mexico border between 1994 and 2001, out of which the U.S. border patrol was logistically able to inspect about 10%. Drug trade organizations (DTOs) across Mexico and Central America saw this as a lucrative opportunity to circumvent the U.S.’s “War on Drugs” crackdown that had compromised the popular cocaine trafficking route that ran from Colombia to Florida. Mexican cartels that had originally specialized in trafficking marijuana and heroin began also moving Colombian cocaine north of the U.S. border.
For these cartels, the economic prospects couldn’t have been better. The ability to export thousands of additional tons of drugs over the border led to an explosion of the narco-economy, with current estimates indicating that these cartels could be racking in anywhere from tens to hundreds of billions of dollars in annual profits.
As U.S. healthcare and legal systems began facing the realities of yet another significant influx of illegal drugs, Mexico concurrently struggled with its own problematic byproduct of NAFTA: U.S.-exported guns. Border towns in states such as California, Arizona, and Texas became not only the largest source of legal exports to Mexico, but also the primary provider of illegal exports in the form of semi-automatic weapons. As of 2017, up to 2,000 guns a day were illegally moved south of the U.S. border to Mexico. This surge of available AK-47 style weapons served to exacerbate the already volatile power dynamics of the competing Sinaloa, Jalisco New Generation (CJNG), and Gulf Cartels. Studies have estimated that this conflict, along with the continued struggle between the cartels and Mexican government forces, has led to nearly a quarter million deaths from 2006-2018. In standard form, the U.S. has “supported” the Mexican government in its campaign against the cartels by sponsoring increased militarization of their counter-terrrorism initiatives. However, the U.S government has not proposed any significant policies to address the underlying catalysts of cartel violence, which have deep roots in neoliberal schemes such as NAFTA.
Recently, a number of developments in international treaties and domestic politics have had a variety of implications for Mexico. Firstly, the renegotiation of NAFTA and subsequent implementation of the USMCA has ushered in a new era of multilateral trade relations across North America. Secondly, the presidential election of Andrés Manuel López Obrador in 2018 has indicated a stark break from the traditional militarized government strategy against the cartels, encapsulated by Obradors’ famous “hugs not bullets” strategy.
The question remains: have these developments brought about any meaningful change to the daily lives of those living in post-NAFTA Mexico? As it stands, not really. With the USMCA being less than 6 months old, it is too soon to determine the long term impact that it will have on the formal and informal sectors of the Mexican economy. Its revised policies are heavily geared towards returning auto industry jobs back to the U.S. and Canada, with a new stipulation requiring that “40-45% of a vehicle’s value” must come from countries with higher minimum wages.
The USMCA does include a clause designed to support the labor rights of workers in Mexico by allowing the U.S. and Canada to appoint experts in international labor laws to oversee activities in Mexican factories. Though this is by some definitions a positive development, it primarily applies to the maquiladoras of northern Mexico. It does not address the millions of rural farmers in the south who continue to live in the shadow of a neoliberal scheme that robbed them of their jobs and livelihoods. As for what the USMCA means for the illicit economy that its predecessor undoubtedly exacerbated: business as usual. The negotiation of the agreement gave no official mention of its inextricable connections to the illegal trade of drugs and guns, meaning that the flow of these two goods will likely continue with few issues.
As formal trade processes under the USMCA continue to advance, so does the power of Mexican cartels, accompanied by steadily increasing levels of violence. President Obrador has attempted to combat the devastating realities of the narco-economy by proclaiming to use methods of intelligence instead of brute force. Local and international critics of the policy are extremely skeptical about its efficacy and authenticity, expressing that in practice, the government approach has been mostly the same as that of past administrations. One thing that can be said for sure is that international assistance in the form of increased militarization and specified targeting of “drug kingpins” (such as El Chapo Guzman) has not worked in the past, and it will most likely not work now.
Instead, there needs to be a significant effort to critically analyze the systemic inequities that have created a political environment in which the proliferation of cartels in Mexico has become an inevitability. To have any real measure of success, such an approach would require the U.S. government to address the “development gap” that policies such as NAFTA facilitated between Mexico and its northern counterparts. The recent implementation of a revised USMCA presents a unique opportunity for the participating governments to address these underlying issues, and to work towards a future wherein North American political security is founded upon notions of economic inclusivity and widespread equity.