Why Mexico isn't a big winner of NAFTA

Trump's evolving relationship with Ford
Trump's evolving relationship with Ford

President Trump often says that Mexico is the big winner from free trade with the U.S.

"It has been a one-sided deal from the beginning of NAFTA," Trump tweeted on Jan. 26, referring to the trade agreement between the U.S., Mexico and Canada.

But Mexico's experience with NAFTA has been anything but a clean victory.

Poverty in Mexico has increased since NAFTA became law in 1994, and the country's economy performed worse than many of its peers in Latin America, according to a new study published by the Center for Economic and Policy Research, a left-leaning think tank.

"Many people think that since American workers lost out from NAFTA, Mexicans must have benefited," says Mark Weisbrot, co-director of the think tank. "But the data show that this is not true."

Related: Mexico ready to 'step away from NAFTA' if new deal isn't good

NAFTA's fate is coming to a head as the Trump administration prepares to formally kick off a 90-day countdown to start talks with Mexico and Canada.

Several studies show that Mexico both won and lost from NAFTA, depending on the sector of its economy. That's akin to the U.S. experience -- broadly speaking, some U.S. manufacturers suffered while many American farmers gained.

The latest analysis cites Mexican government figures and finds that about 55% of Mexicans today cannot afford basic expenses, such as food, housing, health care, education transportation and clothing. That's up from 52% in 1994, which may sound like a small increase, but it amounts to an additional 20 million Mexicans living under these conditions.

Related: I sent money home to support my family in Mexico

Mexico also ranks 15th out of 20 in Latin America in GDP per capita -- a measure of the population's purchasing power. Between 1994 and 2016, growth in Mexico's GDP per capita averaged 1.2%, significantly lower than other nations such as Colombia, Peru and Chile, according to CEPR.

A double whammy for Mexico was the entry of China into the World Trade Organization in 2001. China quickly became Mexico's biggest competitor over trade with the United States.

China's share of trade with the U.S. increased sharply after it joined the WTO, which hurt Mexico's prospects and share of the U.S. market.

NAFTA has also hurt rural Mexico. According to the think tank's research, Mexico lost about 2 million farming jobs between 1991 and 2007 (it didn't provide more recent data).

Large-scale U.S. farmers, especially corn farmers, outperformed production from their Mexican counterparts, many of whom owned small and medium-size farms that lacked advanced technology.

Today, Mexico is one of the world's top buyers of U.S. corn and soy.

Related: My American job is moving to Mexico

In general, Mexico did win when it comes to the manufacturing sector. Over 80% of Mexico's exports go to the U.S. tax-free today. American companies of all stripes, from John Deere (DE) to Krispy Kreme, have created jobs in Mexico since NAFTA began.

And other data does show that poverty in Mexico has actually declined in some respects. According to World Bank data, in 1994 there were 9.2 million Mexicans living in poverty, defined as living on $1.90 a day -- a yardstick which has been adjusted for inflation over the years. Today, that figure stands at 3.8 million.

Personal Finance


CNNMoney Sponsors