Has Canada ever had a recession




PARTIAL DOCUMENT:



Economic Impact of NAFTA



The trade liberalization agreed by NAFTA has the already growing intensive Exchange of goods between the three Member States given an additional boost. US exports to Mexico rose by around 22 percent in the year the agreement came into force (1994), bringing Mexico, as a buyer of US goods, almost level with Japan, the US's second most important trading partner. Although the growth rate of US imports from Mexico in the same year was 23.6 percent higher than that of US exports to Mexico, the United States posted a trade surplus, albeit a small one, at the end of the year (484 million US dollars). book. To Canada, its most important trading partner, the USA delivered goods worth around 114 billion US dollars in 1994, 14 percent more than in the previous year. US imports from Canada increased 16 percent in the same year. In 1994, trade between the United States and its two neighbors showed significantly higher rates of increase than total US exports and imports.

The increase in intra-regional trade brought about by NAFTA is already worrying Mexico and Canada’s economic dependency on the USA is even greater: The US share of total Mexican exports increased from 80.6 between 1992 and 1994 Percent to around 85 percent. In the same period, the US share in the Mexican exceeded Total imports the 70 percent mark; it increased from 69.9 percent to 72 percent. The same Development can be noted with regard to trade between Canada and the USA: Fraud of the US share of total Canadian exports was almost 78 percent in 1992, he made two years later 82.5 percent off. The US share of total Canadian imports grew over the same period from 63.5 percent to just under 66 percent.

With the influx of foreign Direct investment Mexico's dependence on the United States has diminished, if only slightly, as a result of NAFTA. Overall, direct investment from Europe, Japan and the USA rose by 85.6 percent in 1994 compared to the annual average for the four preceding years (1990-1993) to a total of around 4.3 billion US dollars. The highest growth rate was recorded in Japan (almost 470 percent), from which 518 million US dollars flowed in direct investments into Mexico in 1994. The inflows of 511 million US dollars from Europe (Switzerland and the EU with the exception of Greece and Ireland) were in the same range, increasing by around 88 percent compared to the annual average for the years 1990-1993. The United States recorded the lowest rate of increase in 1994 compared to Japan and Europe (67.5 percent). The US dominance in the area of ​​direct investment has not done any harm: With almost 2.5 billion US dollars in direct investment in 1994, the US is still by far the largest foreign investor in Mexico.

What NAFTA is really worth was shown in 1995 when Mexico’s GDP followed Mexican’s Currency crisis of December 1994 shrank by almost 7 percent and gross investment in the first nine months compared to the same period last year fell by 30 percent in real terms. At the same time, private consumption fell by almost 13 percent. From this economic crisis Mexico's NAFTA partners were less affected than the majority of Mexican trading partners: While Mexican imports from the US and Canada are down around 5 percent and approximately Imports from the EU fell by almost a quarter. This strong one The decline is not least due to NAFTA: Today around a third of exports are already there of the EU member states after Mexico are affected by the NAFTA regulations. This percentage will be up increase to around 43 percent in 1999 and around 90 percent in 2003.

The Mexican Currency Crisis - A Consequence of NAFTA?



The effects of the Mexican financial crisis of December 1994 and the associated recession were less economic than political. The drastic peso decline - in mid-January 1995 the exchange rate of the peso against the US dollar was 40 percent below its December level - led to a Mexican export boom . Mexico's exports to the United States grew by around 29 percent in 1995. At the same time, Mexican imports from the US fell 5.2 percent as a result of the economic crisis, turning the US trade surplus for 1991-1994 into a deficit of around US $ 17 billion. This reversal led the Clinton administration and NAFTA supporters to lose one of their main arguments for a North American free trade area, namely that NAFTA would lead to an increase in US exports to Mexico and this in turn would create new jobs in the US, according to that of the Clinton -Government equation free trade agreements = US exports = US jobs. Even one of NAFTA's most ardent proponents, Gary Hufbauer from Institute for International Economics, corrected its forecast of the creation of additional US jobs thanks to NAFTA drastically downwards, from 170,000 to 0 at best after the Mexican crisis.

This gave the NAFTA opponents a new impetus, which was confirmed in their predictions. Anti-NAFTA sentiment was further fueled by the bailout package of just under US $ 50 billion put together by the Clinton administration. This saw IMF loans totaling $ 17.8 billion, short-term loans of the Bank for International Settlements (BIS) in the amount of 10 billion US dollars as well as short-term currency swaps of some Latin American countries and Canada in the amount of 1 billion US dollars each. For its part, the United States provided US $ 20 billion in loan guarantees and currency swaps, which Clinton per Executive order from the Exchange Stabilization Fund branched off. Clinton made use of this option, which does not require the approval of Congress, after it was clear at the end of January 1995 that his proposal for an aid package for Mexico would not find a majority in the US Congress. The rescue package was also rejected by the American public: In surveys, up to 80 percent of those questioned rejected the loan guarantees.

Both the Mexican financial crisis and the controversial bailout by the Clinton administration have been wrongly associated with NAFTA: The currency crisis was mainly due to the astronomical current account deficit (around 29 billion US dollars or 8 percent of GDP in 1994) and the associated growing dependence of Mexico on portfolio investments. The trade liberalization undertaken within the framework of NAFTA certainly accelerated the flood of imports triggered by the neoliberal economic reforms and thus contributed to the enormous deficit in the Mexican current account; However, the main reasons for this were the pegging of the peso to the US dollar and the resulting overvaluation of the Mexican currency, which made imports cheaper and exports more expensive, and the rise in interest rates, which primarily attracted short-term, highly volatile portfolio investments. The current account deficit is at this level So mainly with monetary policy and monetary measures of the Mexican government or to declare the autonomous central bank since April 1, 1994.

The rescue package for Mexico was also not directly related to NAFTA. From a financial and economic point of view, such an aid package was urgently needed at the end of January. A further acceleration of the rapid peso decline would have had serious consequences for the US economy due to the traditionally strong economic interdependence of the two states, which had grown in the 1990s. The Clinton administration also feared that if Mexico defaulted, investors could generally lose confidence in emerging markets. At the same time, the US government also had political motives for an aid package, such as fear of a new wave of immigration from Mexico and a fundamental interest in the political stability of its southern neighbor.

However, these reasons were largely ignored by the American public. Instead, the Mexican currency crisis intensified as well as Clintons Bailout the skepticism in the American public not only about NAFTA, but compared to free trade agreements in general. Bill Clinton will have a harder time than ever before the Mexico crisis had to convince the US public that the one between the three NAFTA countries agreed Chile's accession to the North American free trade agreement as well further free trade agreements with Latin American countries or groups of countries in the national The interests of the United States are, not to mention, the entire Western Hemisphere comprehensive Free Trade Area of ​​the Americas (FTAA) at the December 1994 Miami Summit was envisaged.

This is important because, in the case of the United States, public opinion on trade matters generally has far more influence on the decision-making of Congressmen than in other western democracies. While the Clinton administration pushed both NAFTA and GATT Uruguay Rounds through Congress in its first term, it failed to convince the American public of the benefits of free trade in general, and with Latin America in particular to convince. This is borne out by a nationwide survey carried out in early October 1996: It found that a narrow majority of US citizens (51 percent) believe that trade deals will result in fewer US jobs, while 23 percent think the opposite. 57 percent of those surveyed were of the opinion that the US government should not negotiate new free trade agreements with Latin American countries, 36 percent were of the opposite opinion. The Clinton administration's trade outreach is indicative of the following: Little more than half of respondents (52 percent) said their views on free trade were less positive than they were a year ago because of what they thought of NAFTA and know GATT. On the other hand, 27 percent said their views on free trade were more positive than they were a year ago.

This is not least due to that hesitant and volatile trade policy that marked Clinton's first term in office. In his first year in office, it was a full 10 months before Clinton came out clearly in favor of NAFTA. As recently as two months before the decisive vote in Congress, the staunchest proponents of NAFTA in Congress had doubts that Clinton was fully behind the deal. From an indecisive US trade policy The preparations for the summit in Miami and the implementation of those met there are also evidence of this Agreement. When Clinton officially announced the date and location of the summit in March 1994, trade was not a central theme of the meeting. It was only at the urging of the Latin American countries, for which trade talks were central, that this issue was placed high on the agenda. Serious talks on trade issues did not begin until the end of October, just six weeks before the actual meeting, at which the agreed agreements were only supposed to be signed.


© Friedrich Ebert Foundation | technical support | net edition fes-library | July 1999