Mexican Truck Project Eliminated

Congress has approved a bill to stop funding a trade program implemented by the Bush Administration as part of NAFTA agreements.  The bill brings an end to the cross-border trucking project while providing funding to over $410 billion of earmarked spending.  The Mexican government has retaliated by instituting tariffs on U.S. products (everything from Christmas Trees to grapes) amounting to $2.4 billion - an increased tax rate from 10% to 45% (AP March 18).

What were they thinking?

NAFTA might as well have been written on toilet paper for as much good as the agreement has done thus far, and now Congress has finally wiped themselves with it and flushed it all down the toilet.  Forget about the potential benefits the free trade agreement had for the U.S., Canada, and Mexico for the past 15 years. We cannot reasonably expect the NAFTA accords will ever generate the economic goals it established if Congress continues to contradict the measures. 

Drugs

Critics of the cross-border trucking program have cited the war on drugs as reason for eliminating the project since its inception in 2007.  Admittedly, the drug issue in Mexico is certainly cause for concern for most Americans given the violence associated with the crisis and its impending encroachment on U.S./Mexico border security.  However, this argument is weak, at best.  This new policy has only made it more lucrative for Latin American drug cartels to smuggle their narcotics into the U.S. and potentially made life for Americans near the border even more dangerous.  By halting the trucking program, Congress has actually encouraged more drug trade.  Limiting the supply, and raising risk, raises price.  The artificial 'shortage' of narcotics in the U.S. and the increased difficulty of transporting drugs into the country raises the profit opportunity…and the “greedy American capitalists” will be looking for a profit opportunity when they lose their jobs as a result of the increased tariffs on American products entering Mexico. 

Moral of this story: ending the trucking program won't do anything to deter Latin American drug activity.  In fact, it may increase activity in Latin America and the United States.

Furthermore, it is rather well known that corruption is rampant in Mexico.  The drug cartels have infiltrated the administrative components of the nation’s military and policing units for years.  It’s a wonder Congress didn’t consider the influence the cartels could potentially have on federal policy given that the Mexican government is at the mercy of the drug lords. 

What were they thinking?

The Mexican and U.S. Economy

Agricultural subsidies granted to U.S. farmers have lowered the price of American foodstuffs in Mexican markets for years, making it almost impossible for Mexican farmers to sell their crops locally.  Towards the end of the Bush Administration, federal policies that encouraged the incredibly inefficient production of ethanol fuels caused corn prices to rise even further.   Ending the trucking program was evidently the last straw (or should I say husk), and the Mexican government has finally decided to call in the debt.  

When the U.S. is experiencing one of the most devastating levels of unemployment in the country's history, Congress adds to the country's income woes.  Import tariffs on roughly 90 manufactured products will likely fuel the economic downturn in the U.S. economy by forcing employers to cut costs to account for lower product sales in the Latin American market.  Much of the Latin American market is informal, where high resale values on everyday products like those subject to the new tariffs will ultimately prevent their initial sale in the Mexican market and force companies to lower their output and likely cut jobs in an effort to cut costs.  Meanwhile, states are passing legislation to increase the minimum wage and make labor even more expensive for employers. 

The Obama Administration cannot claim to be creating jobs with government spending if job losses occur in the industries that our neighbors use for retaliatory claims to bad policy.  Ever heard of the Smoot-Hawley Act?  The U.S. State Department even admits to the measure's failed protectionist policy!  "Overall, world trade declined by some 66% between 1929 and 1934."  Retaliatory measures are not something new to the U.S. - but that's only if you paid attention in your 8th grade U.S. history class.

What were they thinking?

Now things get really juicy.  An LA Times article from March 11th breaks down some of the $410 billion of earmarked spending included in the bill that ended the cross-border trucking program.  Senators Diane Feinstein and Barbara Boxer of California sponsor 13 earmarks for their constituents that amount to $166.4 million, or about 4% of total earmarks.  Most of the projects, however, fund public service initiatives like water recycling programs and bus-only traffic lanes in urban areas - nothing for the industries potentially affected by the Mexican import tariffs.  Granted, there would have been no way to predict that the Mexican response would take the form of tariffs.  The point here is that our nation's politicians ought to reconsider the parameters of their  'greater good' analysis if they're going to interfere with international trade.

What were they thinking? ... Or were they...

*Special thanks to Liya Palagashvili for her assistance with this post.