THIS CHAPTER summarizes the arguments for and against U.S.-Mexican free trade, separates the real from the false issues, discusses the possibility of trilateral free trade with Canada, and draws conclusions from this analysis.
The arguments in favor of U.S.-Mexican free trade are based on three considerations: the adverse consequences to Mexican industry (and to employment and incomes in Mexico) of continuing past and current protectionist policies; the desire to eliminate U.S. protection that Mexican exports face, and might face, in entering the U.S. market; and the issue of whether explicit trade integration might enhance Mexican influence on mutual policies rather than reduce it. The last point is relevant because the trade and financial integration that already exists makes independent Mexican macroeconomic policies infeasible in any event.
Mexico's use of import-substituting industrialization (ISI) was extreme by any standard, in that protection for most industries was absolute. Import policies began to be liberalized in 1976 when some import licenses were converted to tariffs to permit some price competition, but this did not go far and the experiment did not last long. One consequence of this extreme form of ISI is that Mexican industry generally is noncompetitive in world markets and Mexico must rely on