Make Mexico Great Again
In an interview last Friday, US Secretary of Commerce, Wilbur Ross, spoke on positive considerations for Mexico in the looming NAFTA renegotiation that resulted in a Mexican peso surge. It appears that Ross is discussing the possibility of asking Mexico to consider raising its minimum wage. The Mexican minimum wage is a fraction of the U.S. minimum wage. Workers there must be paid at least 80 pesos a day, which works out to be only about $4.00. The U.S. minimum wage is $7.25 an hour, or $58.00 for an 8-hour day. Some have heard discussions about how Ross’ plans could Make Mexico Great Again. While the thought of renegotiating NAFTA has caused concern, Wilbur’s comments sparked optimism for what those negotiations might entail.
Make North America Great Again
Donald Trump ran on an “America First” campaign platform, and repeatedly referenced his intentions to renegotiate NAFTA to make sure the US gets what he considers a better deal. The push has been characterized as an attempt to benefit the US at the expense of her southern neighbor, yet Ross’ comments last week sounded altogether different. Iterating what some have referred to as a “Make Mexico Great Again” message, the US Secretary of Commerce outlined some of the objectives he hopes will come out of NAFTA discussions with Mexico, including a minimum wage hike for Mexican laborers and a strengthening of the Mexican peso.
The peso declined last year by about 8.7%, yet in reaction to Ross’ prophetic comments, the markets reacted with a Mexican peso surge. In one morning, the peso rose 1.9% after comments Ross made in an interview, suggesting that renegotiations with Mexico could benefit both Mexico and the US:
“The peso has fallen a lot, mainly because of the fear of what will happen with Nafta…I believe that if we and the Mexicans make a very sensible trade agreement, the Mexican peso will recover quite a lot.”
Possible Benefits of Mexico Increased Minimum Wage
Let’s say, for illustration purposes, that Mexico increases the Minimum Wage from $4.00 per day to $20.00 per day; a 500% increase:
- A gradual reduction of visible poverty in Mexico with an expanding middle class.
- Families having discretionary funds with which to improve personal education and healthcare.
- An expanding marketplace of millions of people for U.S. products, increasing US exports.
- Increasing jobs in the US due to expanded exports to Mexico.
- Increased tourism from Mexico to the US and Canada due to expanded family budgets.
- Mexico governmental tax receipts increasing through its current income tax laws.
- Strengthening of the Peso.
- Reduction of Hispanic illegal immigration into the US as they will be able to earn life sustaining incomes at home.
- Reduction of Border Security Costs as illegal access to the US is reduced.
- Reduction of US prison costs currently housing tens of thousands, needlessly.
- Reduction of US court costs as fewer illegal immigrants cross into the US.
- NAFTA negotiations would have minimal impact on US/MEXICO relations, in fact relations would improve.
- Development of a true global manufacturing center with Canada, US and Mexico working as one.
The logic of Will Ross’ statements is catching the world off guard. It is said that Wilbur Ross is a man that thinks out of the box. In this case, no one can find the box. Who would have thought the Make Mexico Great Again theme could solve so many problems.
The Mexican peso surge on the morning Commerce Secretary Ross made these comments indicates the hope of Mexicans that renewed discussions regarding the North American Free Trade Agreement will bring much-needed benefits to Mexicans. The agreement was supposed to help raise the standard of living for the average Mexican worker, yet as Morris pointed out in his comments, the minimum wage in Mexico is still woefully low. Factoring in a significant minimum wage increase seems to have resonated with the Mexican markets. And the resulting Mexican peso surge may also prove to be a bellwether foretelling a turnaround for the peso in coming months if the renegotiation agenda moves forward.
Among the other primary points the Trump administration wants to renegotiate with its NAFTA partners are:
- Tightening rules of origin creating jobs in the US, Canada and Mexico.
- Stabilizing the peso-dollar exchange rate.
- Preventing illegally subsidized goods from benefiting from trade protections.
- Improving living standards for Mexican workers.
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