Vermont Exports To Mexico Could Take A Hit Should NAFTA Change

Jan 28, 2018

There are fears in Mexico that NAFTA's collapse would seriously damage the country’s economy, not to mention exports from the U.S. and Canada to Mexico. That includes exports of clothing and microelectronics from Vermont.

While Canada is Vermont's largest export market, University of Vermont economist Art Woolf says the state's trade with Mexico "is not small potatoes."

More from VPR: Will NAFTA Changes Hurt Vermont-Canada Trade?

Woolf said depending on the year, Mexico is Vermont's fifth or sixth most important export market, in large measure because of NAFTA — which took effect Jan. 1, 1994.

Pointing to U.S. Census Bureau figures, Woolf said trade since NAFTA between Vermont and Mexico has risen to around $200 million annually.

"If you go back to before NAFTA, it was trivial — it was maybe $5 million. So going from $5 million to $200 million today, some firms in Vermont are selling a lot of things to Mexico that they weren't selling before,” says Woolf.

Mexican companies buy microelectronics, food and apparel from Vermont.

Xochitl Hernández in her commercial greenhouse in Mexico City. She sells to clients in Texas and California. She'd like to expand to New England but fears that hope will be dashed should the U.S. withdraw from NAFTA.
Credit Lorne Matalon / For VPR

And at least one Mexican exporter, Xochitl Hernández, who currently sells to clients in California and Texas, would also like to sell flowers to Vermont.

Speaking as she packed pallets of lush tropical plants at her commercial greenhouse in Mexico City,  Hernández said she hopes to enter the New England market by continuing to take advantage of NAFTA's duty-free borders.

"Killing NAFTA is absurd," she said in Spanish. “No NAFTA means no growth."

Alberto Martinez welds steel at a U.S.-owned mass assembly factory in Reynosa, Mexico. Those factories are experiencing a labor shortage as the sector expands in large measure because of NAFTA.
Credit Lorne Matalon / For VPR

Mexican economist Jonathan Heath says NAFTA works because it’s a different kind of trade deal.

“The whole thing about NAFTA, it’s not really a trade agreement in the sense that, ‘Look, I’ll sell you this and you sell me that,’" says Heath.

He says it's more of a 'let's-make-things-together-deal.' For example, cars. 

"Maybe at the end of the day, we're exporting more cars into the U.S. than the U.S. is exporting into Mexico,” says Heath. “But that car probably has 40-50 percent components that come from the U.S. anyway. So it's so, so integrated into the two countries."

Ramona Morales, foreground, works on an assembly line in Reynosa, Mexico making heating ducts with Romualda Hernandez Domingo. Both credited NAFTA for their employment.
Credit Lorne Matalon / For VPR

In an interview in his office in Mexico City, Mexican Senator Juan Carlos Romero Hicks said he hopes NAFTA will be modernized to account for technology like e-commerce. However he said the notion of scrapping the agreement altogether is abhorrent for Mexico.

"I never dreamed in my lifetime of a U.S. president that would be afraid of Mexico, afraid of competition," said Romero Hicks.

Across town, Federico Estévez teaches at ITAM, a leading Mexican university whose alumni line the halls of power in Mexico.

"We've basically turned into an industrial economy on the basis of NAFTA," Estévez explained.

Under NAFTA, Mexico's economy has become largely industrial rather than agricultural. Small plot farmers such as Rafael Avila in Xochimilco, Mexico have been crushed by NAFTA. He said NAFTA is weighted in favor of agribusiness at the expense of lower volume producers.
Credit Lorne Matalon / For VPR

Estévez said Mexico will not roll over if Trump scraps the deal, adding that if NAFTA falls, politicians may be forced by the Mexican street to retaliate with tariffs of their own against U.S. imports.

"What else should we do? I mean, what, just sit and take it?" asked Estévez rhetorically.

Alejandro Hope, a former senior security analyst with Mexico's civilian intelligence agency, says Mexican businesses active in the U.S. — like the giant Bimbo Bakeries, which makes well-known American brands like Sara Lee and Entenmann's — now face public pressure in some quarters in Mexico to reduce their U.S. investment.

According to a study by the nonpartisan Wilson Center in Washington D.C., close to 5 million U.S. jobs depend on trade with Mexico.

"This is something that the U.S. public needs to know. Going after Mexico, or harassing Mexico — it's not a free lunch," declares Hope.

Under NAFTA, all raw material imported from the U.S. to assemble here on the Mexican side of the border must be exported as finished product in order to retain duty-free access to both markets.
Credit Lorne Matalon / For VPR

Mexican Energy Undersecretary César Hernández Ochoa believes both countries would suffer economically should the NAFTA negotiations falter.

"If protectionist measures are done, it's very easy to escalate them," he says. "So you retaliate with a different measure. And it's not a good state of things."

On the street, some Mexicans have chosen not to buy U.S.-made products citing the controversy of an expanded border wall and NAFTA’s uncertain path forward.

"We can live without U.S. goods," said cabbie Jose Aviña Picazo in Spanish, reflecting a nationalism that recent events in the U.S. have renewed in Mexico.

Statements such as that are something manufacturers, including those in Vermont, don't want to hear.