Free Trade and Immigration: Cause and Effect

By: COHA Research Associate Jacob Hill

• The Democrats’ rhetoric against enacting the free trade pact entered into by the Bush administration with Colombia represents a striking setback against President Alvaro Uribe and the U.S. president. Nevertheless, it is a victory for probity, a blow against Bogotá’s scandal-ridden government, and a denouncement of Uribe’s indifference to human rights.

• Although discussion of free trade and immigration issues has recently stalled in Congress, supporters on both sides of the aisle are attempting to revive the debate as perspectives continue to polarize.

• The combination of free trade and heavy U.S. subsidies has crippled the Mexican agricultural sector, causing impoverished former subsistence farmers to immigrate to the U.S. by any means necessary.

• Immigration is not the demon it is often portrayed as—nor is it devoid of any profound dangers to the well-being of the U.S., as pro-immigration forces insist.

• Conservative policies of supporting free trade while restricting immigration are inherently incompatible.

In recent months, the U.S. Congress has circumvented the will of President George Bush by delaying any action on free trade agreements with Peru and Panama. Moreover, the Democratic leadership has recently criticized the Colombian free trade agreement, damning one of President Alvaro Uribe’s most prized economic initiatives. Now, these issues, much like the immigration debate, will most likely not be revived until after the 2008 elections, if at all. In the meantime, it is vital that all parties involved examine the inextricable link between these two failed policies—immigration reform and expansion of free trade. As U.S. concern over both immigration and free trade issues were reaching a fever pitch, the reality of how the latter impacts the former has not been adequately addressed. It is likely that the group most directly affected by these issues has been the rural, agrarian population of Mexico. Since 1994, the year in which the North American Free Trade Agreement (NAFTA) went into effect, immigration from Mexico to the U.S. has more than doubled, due, in large part, to the trade pact.

Why Immigration Has Spiked
In recent years, subsidies received by U.S. corn farmers have resulted in overproduction—flooding the market and causing large dips in the price of the crop. Under Washington’s agricultural subsidy program, in 2000, U.S. corn producers alone received $10.1 billion in payments from the U.S. government—ten times the Mexican government’s annual agricultural budget. Subsidies are determined by a farm’s land area and historical output; thus, due to these factors, the vast majority of the aid goes to large agribusinesses. In the U.S., the top ten percent of agricultural subsidy recipients (most of whom earn, on average, over a quarter million dollars per year) receive over 70 percent of the subsidy dollars. There are also provisions for “counter cyclical payments,” which are subsidies given to U.S. farmers for the sole purpose of protecting their produce from price fluctuations within the global market.

The U.S. has established a pattern in which it seeks to open its borders by means of free trade deals, bringing supply and demand capitalism to a developing world, hoping, at best, to create mutually beneficial trade arrangements, which, in many instances, do not work out that way. Meanwhile, Washington protects its own farmers against the self-correcting mechanisms inherent in the capitalist model by rewarding overproduction at home, economically penalizing small farmers in other parts of the world.

NAFTA has caused unemployment within the agricultural sector of Mexico to skyrocket. According to the Economic Policy Institute, at the end of 2004 there were 6.8 million unemployed agricultural workers in Mexico. Corn producers were perhaps the hardest hit by the free trade agreement: over one million of the crop’s cultivators have lost their jobs since the end of 1993, with many of them being forced to sell off their land at artificially low prices. Overall, paid wages to Mexicans working on corn farms have fallen 70 percent and, according to Witness for Peace, rural poverty rates in Mexico have risen to 81 percent. Between 1991 and 2004, the percentage of the Mexican population involved in the agricultural sector fell by over 10 percent.

Although NAFTA has certainly sharpened Mexico’s agricultural problems, it alone is not wholly to blame for the country’s now struggling economic sectors. According to the Latin American Regional Report, subsidies to support Mexican farmers do exist, but, much like those in the U.S., they are usually given to large-scale operations. Mexico’s richest farmers and agribusinesses pay neither income tax nor irrigation costs, actually resulting in their receiving more aid than the average U.S. farmer enjoys. By contrast, the poorest and smallest Mexican farming operations receive only insignificant amounts of support, consisting exclusively of subsidized fertilizer and awards from the Procampo program—a modest initiative instituted by the Mexican government to curb migration resulting from NAFTA. But, according to Quentin Wodon of the World Bank and Gabriel Gonzalez-Konig of Universidad de Guanajuato, Procampo has only been marginally successful (at the five percent level). Moreover, the subsidy payouts can actually be used by impoverished families to cover migration costs, intensifying the very immigration problem the program seeks to curb. With Procampo expiring in 2008, the Mexican government favoring wealthy farmers through subsidies and with NAFTA as an ongoing fact of life, it can be expected that immigration to the U.S. will continue to increase in the coming years.

Immigration to the U.S.
Some argue that, even with the weakening of Mexico’s agricultural sector in NAFTA’s wake, there is no compelling excuse for illegal immigration to the U.S., citing alternatives available in both countries. However, because of the damage NAFTA has done to other, non-agrarian sectors of the Mexican economy, workers are being left with minimal options. Since 2001, over 850,000 jobs have been lost in the Mexican manufacturing industry, real wages have fallen by 20 percent, and the marginalized informal market has grown to encompass more than half of the Mexican economy, with impoverished earnings being its usual reward. As a result, workers flee Mexico in favor of the U.S., where, through myth or reality, they have come to believe that ample opportunities exist to improve their lives. Their hope is often warranted: the estimated prevailing wage difference between California and the Mexican state of Guanajuato was 13:1 in 2000. In 2005, over $20 billion were sent to Mexico by Mexicans living in the U.S., a 17 percent increase from the previous year, with future increases being justifiably anticipated. Because of this vast disparity in income potential, the demand for passage to the U.S. has radically escalated. According to the Center for Immigration Studies (CIS), the influx of Mexican immigration to the U.S. is a relatively recent phenomenon: in 1970, the Mexican immigrant population in the U.S. was only 800,000, but today that figure has jumped to around 12 million. According to Witness for Peace, the influx is so significant, and the value of the prize—successful immigration with a relatively high minimum wage—is so irresistible, that the cost of an illegal crossing guide has risen from $300 to $2,000 over the last several years.

According to the Pew Hispanic Center’s report Rise, Peak, and Decline: Trends in U.S. Immigration 1992-2004, post-NAFTA annual immigration peaked at over 1,500,000 Hispanic migrants per year, with over 650,000 moving here illegally (Figure 1a).

Figure 1a

In 2000, over 530,000 Mexicans immigrated to the U.S. In a COHA interview, Jeffery Rassel, Senior Research Associate at the Center, said that the numbers from the report are “actually a bit low,” revealing that the most recent figures estimate that 80 percent of all immigration from Mexico is illegal. Those choosing to make the illegal trek into the U.S. must endure extreme natural and physical conditions. Deaths are disturbingly common along the U.S.-Mexican border. In 2005, over 460 Mexicans died attempting to cross into the U.S. In 1993, the year prior to NAFTA’s enactment, there were only 205 immigrant deaths. A Witness for Peace study revealed that in 1998, weather-related deaths (hyper- and hypothermia) among immigrants were three times higher than they were in the 1980s.

According to a report by the University of California, Davis’ Department of Agricultural and Resource Economics, Mexican-born persons represented 77 percent of the U.S. farm workforce in 1997-98, a 20 percent spike from a 1990 pre-NAFTA survey of farm workers. Of these laborers, 52 percent were unauthorized, with an overwhelming majority of them hailing from the rural areas of Mexico most impacted by the negative agricultural consequences of NAFTA. Although supporters of NAFTA claimed that the pact would curtail immigration to the U.S. from Mexico by significantly improving the Mexican economy, it is evident that the agricultural sector has experienced the opposite effect, with the UC Davis report stating that, “econometric results suggest that… NAFTA increased the U.S. farm labor supply.”

The Economics of Immigration
Although immigration from Mexico to the U.S., legal and otherwise, is increasing, anti-immigration pundits should not immediately rush to use such findings as an excuse to call for closed borders. The influx of laborers has actually brought with it various economic benefits. According to Steven A. Camarota, Director of Research at the Center for Immigration Studies, since the vast majority of native-born U.S. citizens have completed high school and are employed in higher-skilled occupations, they do not face significant job competition from Mexican immigrants. President Bush’s Council of Economic Advisers reported that immigrants enhance the productivity of native-born workers and increase their earnings by an estimated $37 billion per year. Considering the aforementioned income disparities between Mexican sender states and the U.S., coupled with the economic benefits native-born Americans enjoy as a result of immigration, anecdotally, it actually seems to be a reciprocally beneficial relationship for those directly affected, despite what is often portrayed. This, of course, does not mean that Mexico, as a nation, is more helped than harmed.

Confused Policies
Ultimately, free trade and immigration are not only inextricably linked, but their supporters and opponents are also entangled by incompatible policies. On one hand, conservatives generally support free trade measures and oppose more open immigration policies, which somewhat confounds issues, considering that NAFTA actually has generated immigration on a macro scale due to the agro-economic disaster it caused within Mexico. On the other hand, liberals most often oppose unchecked free trade measures and support open immigration. Ideally, the U.S. would enact policy initiatives that would allow for Mexican farmers to simultaneously thrive in their homeland by strengthening the domestic economy and reduce food costs in the U.S. through the application of far-sighted trade pacts, stimulating both economies. In the meantime, U.S. officials would be wise to judiciously treat the incoming immigrant population and the assets and liabilities it brings for the well being of this country, Mexico, and the entire region.