24 June 2008 193 views One Comment

During the democratic presidential primaries both Hillary Clinton and Barrack Obama blamed NAFTA for loss of factory jobs and vowed to opt out unless NAFTA was renegotiated. Obama has said “We should use the hammer of a potential opt-out” and has described NAFTA as “devastating” and “a big mistake”. Although a 2005 Congressional Research Service study found that NAFTA had a mild to positive effect on US and Mexico economies, I don’t buy it. It is incontrovertible that NAFTA has been a primary factor in Mexico’s growth over the past decade and a renegotiation of NAFTA could have far reaching consequences on Mexico’s housing sector.

With Mexico already losing a share of their exports to low cost China, they can ill afford the additional costs of tarrifs. Economic growth would be slowed by loss of manufacturing jobs, and this would negatively impact the overall financial health of Mexico which would have a domino effect on the housing sector. A slower export market usually means less tax revenue that can be invested in infrastructure and government housing programs. Calderon’s push to increase the number of home loans granted to citizens would be hindered by a decreased budget for financial assistance programs. A less healthy economy can make it difficult for people to get mortgages or keep them as they could be fighting unemployment and higher interest rates. Less demand for homes could lower home values overall, though it may have a lesser effect on communities with a lot of American expatriot retirees.

Proponents for renegotiation say that NAFTA hurts Mexico because it allows factories to pollute more than if they were in the US and Mexicans can not compete with US farm subsidies. On a micro scale there are definitely some losers, but the big picture is that renegotiation would significantly hinder Mexico’s progress as an emerging world economy and I don’t think this helps anyone.