Bal Harbour, FL
The dramatic decline of the Mexican peso, which lost approximately 50 percent of its value relative to the dollar during the first year of NAFTA, illuminates the failure of an international economic policy that relies solely on narrowly defined free trade agreements and protections for international investors. It is an unwelcome vindication of those who counseled patience and caution during the debate over NAFTA.
To address its financial problems, Mexico will drastically cut imports and boost exports. At the same time, the weaker peso will make it cheaper for multinational corporations to produce for export from Mexico, so their operations there will grow.
What this means for U.S. workers is that they will lose more jobs and the downward pressure on their wages will grow even stronger. What it means for Mexican workers is a decline in their standard of living, since the Mexican government will cap wage increases at 7 percent while inflation is expected to exceed 20 percent.
However, not everyone will suffer. International investors in Mexican government bonds will enjoy the protection of an international bailout package of $53 billion -- which includes a $20 billion commitment from American taxpayers.
These events demonstrate once again that economic integration must be managed in a careful and prudent manner. The interests of workers should be a central concern. Any future negotiations on international trade and investment should be far deeper and wider than in the past. They should address capital markets and, most important, internationally recognized labor rights and workplace standards.