Word: perots
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Back during the NAFTA debates, H. Ross Perot darkly warned that if NAFTA passed, we would see a drop in the peso, a "giant sucking sound," which would lure U.S. companies south of the border. Now, in the wake of Mexico's recent peso devaluation, it is not just Perot who is saying, "I told...
Oddly, the peso's devaluation actually accents the emptiness of Perot's dire warnings. The "giant sucking sound" was supposed to come largely from an unequal trade flow. Dollars, chasing cheap Mexican goods, would head south faster than pesos headed north, and jobs would follow the prevailing current...
...this imbalance would also have had a second effect: making pesos precious, thus lessening pressure to devalue. Alas for the peso, Perot's nightmare failed to materialize. U.S. imports from Mexico did grow sharply ; -- by $7 billion, to reach $40 billion, within 10 months; but, as free traders had predicted, so did exports to Mexico -- by $8 billion, reaching $42 billion. Thus Mexico's worldwide trade gap -- now around $30 billion -- never got the relief implied by Perot's fears. Its currency finally crumpled under the pressure...
This isn't to say NAFTA caused the crash. In some ways it helped the peso, by attracting investment from the U.S. and elsewhere. But the pact didn't give Mexico the huge peso-protecting cushion that critics envisioned. It's true, as Perot will gladly remind you, that he actually predicted a post-NAFTA peso devaluation. But not this kind of devaluation. In his scenario, a secretly planned devaluation would be triumphantly unveiled -- a wily Latino ploy that by cheapening Mexican goods, would amplify the sucking sound. Reality proved less rife with intrigue than Perot's imagination. Mexico...
...Even if Perot granted that the plummeting peso is not itself an indictment of NAFTA (don't hold your breath), he would have his fallback claim: after the plunge, NAFTA's perils will loom large. Certainly a weakened peso may encourage a net flow of cash southward. And though devaluation would have had the same effect in a pre-NAFTA world, NAFTA's lower trade barriers would magnify it. But whether this is bad news depends on which side of the NAFTA debate you bought to begin with: Is Mexico's gain America's loss, or is trade...