Word: pesos
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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...
...cheaper peso means that wages will be even cheaper in Mexico, making it profitable for more companies to begin producing materials there. In turn, the devaluation of the peso means that Mexican companies will be able to be more competitive on the world market, thus taking away some of our share of manufacturing...
...told, America is in trouble because of the lower peso. This is decidedly not the case. True, it is partly due to NAFTA that the peso has lowered, but only because NAFTA has forced Mexico to face some economic realities, not because of some plan to lure away American jobs. In fact, it is NAFTA which will enable Mexico to survive this crisis, even allowing both countries--the United States and Mexico--to come out ahead in the long...
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...