Brad DeLong's Semi-Daily Journal: A Weblog

What are the effects of the subsidized US corn sold in Mexico?

I admit that the subsidies are not a part of "free trade", but they are a part of NAFTA.

http://www.nytimes.com/2004/08/26/business/worldbusiness/26maquila.html?pagewanted=all&position=

A Boom Along Mexico's Border
By ELISABETH MALKIN

TIJUANA, Mexico - Yoshiro Takemoto walks swiftly through the Panasonic factory, showing off the improvements being made to produce the latest generation of flat-panel digital televisions.

New automated equipment for wiring electronic circuit boards hums away. Japanese-style work teams collaborate to assemble plasma screens. Mr. Takemoto, the president of Panasonic's North American television manufacturing operations, tracks all his components on intricate charts covering the walls of a conference room.

After a three-year slump, the plant is hiring again. Retooled at a cost of $10 million, the factory created 400 jobs this year to prepare for Christmas sales.

Across Tijuana's vast industrial parks, the export assembly plants known as maquiladoras are thriving, posting giant 'help wanted' signs. In June, an industry group estimated that the Tijuana plants needed to fill some 15,000 jobs. The government announced recently that it expected $300 million of investments in Tijuana this year that would mean another 15,000 jobs; the boom is being repeated all along the border.

It is a sharp change. Three years ago, as American consumer demand shriveled and plants shut or moved to China, maquiladoras lost 280,000 jobs. In Tijuana, more than 60,000 factory jobs evaporated. But this year the tide is turning. Maquiladora exports rose 22.4 percent in June, driving a more general export surge for Mexico. The nation expects economic growth of 4 percent this year, the strongest since 2000.

'We have lived through the hard times,' said César López Ramos, the president of the Tijuana maquiladora association. 'We have made it, so we are less vulnerable.'

Investment poured into Mexico after the North American Free Trade Agreement took hold in 1994. Companies came to take advantage of cheap labor and duty-free access to the United States. But by 2001, the maquiladora industry was shocked to discover how vulnerable it was to the swings of the American economy and to Asian competition.

'The business cycle in the maquila sector is a highly exaggerated version of the U.S. business cycle,' said Gordon Hanson, a professor of economics at the University of California, San Diego. 'Growth in the maquila sector is a couple of times what it is in U.S. manufacturing.'

But analysts say that is not the only factor in the maquiladora recovery. Stung by Chinese gains, many executives have decided that Mexico must sell efficiency, flexible engineering and quick turnaround time, not just cheap labor.

http://www.nytimes.com/2004/06/09/business/worldbusiness/09sugar.html?

In Mexico, Sugar vs. U.S. Corn Syrup
By ELISABETH MALKIN

ZACATEPEC, Mexico - Along the sooty gangways and rickety catwalks of the Emiliano Zapata sugar mill, sweat-soaked workers operate presses, vats and ovens in a process that has changed little since the mill's first harvest in 1938.

From a distance, the mill's chimney sprouts from the cane fields of this verdant part of central Mexico, where sugar has been cultivated since the time of the conquistadors.

Bankrupt twice since 1990 and now run by the government, the mill trucks in 7,000 tons of machete-cut cane a day from the surrounding fields. For the 5,000 growers who sell to the mill, its existence is their only hope of a livelihood.

"We go on just the same as we were 50 years ago," said the mill's general superintendent, Luis Armando Hernández, bemoaning the creaky equipment and the high price of cane.

The mill, its union workers and the impoverished growers are the face of an industry at the center of a trade dispute between Mexico and the United States that has ended up in the World Trade Organization.

What is nominally at issue is a 20 percent Mexican tax on soft drinks made with high-fructose corn syrup imposed in January 2002. The tax was a response, legislators and government officials say, to the United States' unwillingness to accept imports of the Mexican sugar that were displaced in Mexico by cheaper American corn syrup.

"The purpose was to level the playing field," said Carlos Blackaller, a legislator from the opposition Institutional Revolutionary Party and president of the National Union of Cane Growers.

The tax has halted corn syrup imports from the United States and has helped restore the five million-ton-a-year sugar industry, which supports up to three million Mexicans.

"If the U.S. wants to send fructose to Mexico, then it needs to give access to Mexican sugar," said Juan Cortina Gallardo, chief executive of Grupo Azucarero México, which owns and operates four mills.

If you like what globalization can do for ordinary people in poor countries (and I agree it is a boon) then we had better tend to the problem of "factor price equalization" in this country. With falling wages, American voters won't put up with Nafta and Gatt for many more election cycles. Only wage subsidies financed by a progressive consumption tax can save free trade over the long-run. Trade theorists of the world unite: start taking your "principle of compensation" seriously!

I think developing countries should open up their imports for subsidized agri products from rich countries. No point in protesting farm subsidies given by rich countries to their farmers. These subsidies make products cheaper for developing world and it will allow them to develop competitive advantage in other areas of trade. See my blot at http://ashishniti.blogspot.com/ for a complete article on this.

Americans would know that rural Mexico has the same standards-of-living as Orange County, California, were it not for the distortions on AirAmerica and Hannity&Combs?

Looking at the list of improvements in San Agustin Oapan, my thought is that improvement #3 (A much improved road) would be as much to blame for the increased variety of things in the shops as globalisation is. Item #5 seems, for example, to be a classic example of when you improve the transit system, it's a lot easier to move the goods around.

If , say, Iguala now had apples and green beans when it didn't have them before, that would be better evidence that globalisation was the culprit.

The increase in the number of pigs is a very good sign

One village of 1500 people. I feel happy for them, but yeah, that's a friggin' HUGE sample size.

Yeah... and obesity hasn't become a problem yet.

I would feel more confident about a link between consumerism in the village and the wider globalized market if as much attention was paid to changes in other local economic activities. Yes there may be doodads from Canada, but are there increases in employment and wages in the village? Too often in Mexico the supply of money is heavily dependent on money earned in the States and exported back to hometowns and villages. Otherwise, these Mexican rural regions are in deep economic "slumps."

One factor to consider is how many migrants (legal or otherwise) originated in that town. I've known migrants here in Canada that have sent a third to half of their after-tax pay packet to their families ... in rural Mexico (like much of Latin America) that sort of hard currency can have a considerable effect on the local economy.

Globalization may be the culprit but it might not necessarily be in the way Tyler Cowen seems to suggest.

Where the hell do you think migrants to the US and Mexico's shantytowns come from?

Gee, Brad, with this kind of research, maybe you should have a post on how great the economy has been over the last four years in Las Vegas, and then tell us all how "remarkably encouraging" it all is and maybe even thank Bush for the great job he's doing for the country.

Sheesh.

Figured I'd reply that this is ONE town in rural Mexico. One of my friends just spent 8 months in the (more or less) impoverished Indian lands in the South of Mexico. He presented a photo opening in July that detailed what he found, which wasn't pretty. In that area, immiseration was well underway. The central and regional gov'ts provide NO services there (it is a non-Spanish speaking area, thus unimportant). There is a single hand pump built about 30 years ago that supplies ALL water for domestic use; there are no sanitary facilities. There is no power. There is no phone service, or mail pickups. There are no helath services available. The only roads are local dirt tracks and the rocked logging roads. The economy revolves around subsistence farming, resource extraction, and selling trinkets. The problem is that the farming is getting worse year to year, and the water table is falling (making the pump highly unreliable). Mineral extraction has fouled sizeable areas of land, and freecut tree extraction has caused the hillsides to become unstable. Mudslides and soil erosion are common. All extraction activities are carried out by nonlocal subcontractors working for (American) multinationals; these individuals are given contractually required protection by the regional police forces AGAINST the natives. My friend says that buying canned COCA COLA is actually cheaper than buying water, hence everyone drinks COKE, and has rotting teeth as a result. All males above age 12 have only one goal: to get to the US and find work.

So yeah, for all the progress that you may see in one area, it is usually (at least) balanced by misery elsewhere. The native Indians have seen their standard of living decline rapidly in the last 14 or so years. Globalization does NOT lift all boats in areas where the absence of institutions prevent redistribution of accrued wealth. This is a (painful) lesson America has yet to learn.

Farm corn and paint. Farm, corn and paint. Farm, corn, and paint. Clarification, please?

If Mexico is doing so well, why do we have 1 million Mexicans crossing the border every year? Why is the 2nd greatest source of income after oil payments sent home to families from the U.S.? Corporate shilling makes you look bad.

"the first consumers at the new price might value the item at more than a small amount above the observed price"

So he's telling us supply and demand don't work then. That the sellers do not get the highest price they can for their goods. Pfah! When someone is willing to casually disregard the foundations of their whole idelogy, apparantly without even noticing, you have to wonder about their intellectual integrity.

I also would like to agree with the notion that everything named here could be the result of the improved road - and that was almost certainly the result of government action, not the free market (there are private toll roads in Mexico, but they are expensive, exclusively for the well-off, and limited to main routes). Some rich person was taxed for that. Even the increase in pigs might reflect an ability to sell more pigs or pork outside the village - certainly an increase in trade, but one creditable to government action, not NAFTA.

Isn't NAFTA "government action" too?

I've read somewhere thar corn sugar was more fattening than cane sugar, if so, would a law, restricting use of corn sugar as human food, be against free trade in NAFTA definition?

DSW

"Isn't NAFTA "government action" too?"

NAFTA in principle, and for the most part in fact, is a treaty to remove government-created obstacles to trade, chiefly tariffs. Tariffs are a government action; therefore removal of them is *cessation* of government action. Indeed, NAFTA is most often defended in terms of the desirability of "getting government out of the way of free trade", etc. There is a narrow and irrelevant sense in which you could say that any change of government policy is an "act", but at that point you are playing semantic games, not making a substantive argument.

Isn't this the type of evidence that economists discount when it contradicts their models?

"I've been fearing that I'm going to start hearing stories of rural immiserization."

You have been--they're just set in the United States.