SOME RANDOM THOUGHTS ON BUSINESS, TECH, AND POLITICS
President-Elect Donald Trump started off his campaign infamously by calling Mexicans rapists and murderers and then following up that claim by not only saying that we are going to build a wall, but he was going to make Mexico pay for that wall. As time goes on, he then added to his anti-Mexico rhetoric about changing NAFTA to include a 35% tariff to products manufactured in Mexico.
As optimistic as I am with the new President-Elect changing Washington and being the shake-up we need to break up the DC gridlock, I feel the President-Elect is way off on his views regarding Mexico. For full disclosure, I am a white male, lived and worked in Mexico for about 15 years, have a Mexican son, have Permanent Residency in Mexico, and a Peruvian daughter and wife. I have also worked as a Special Liaison to the Secretary of Tourism for Baja California, Mexico. That in no way gives me bias on the subject, to the contrary, it gives me the unique ability to see both sides of the argument and offer a real alternative that would fix the border issue all together, immigration and NAFTA.
Then Republican Candidate Trump, was somewhat right with his claim against illegal Mexicans. He announced his candidacy in 2015 and the most complete yearly data was from 2014. According to the U.S. Sentencing Committee, there were about 76,000 people sentenced that year. Out of 76,000, about 37% of them were undocumented Mexicans. Remember though, these crimes range from petty theft, to driving under the influence, to murder, and rape. So it was mostly true the claim that the Candidate made. The problem was the delivery of the message and how he said it. There is one item item here I do want to point out, not to defend how he said it, but, Candidate Trump has never been a candidate in his life. He was not a life-long politician and really did not even have a real political team around him to coach him on what to say, which is probably why how he said it was so politically incorrect. To play the other side of the table and be fair, the Candidate was also his own PR machine. He knows how to grab headlines and manipulate the media. It could have been just as much intentional as lack of knowledge of political correctness in order to grab headlines and steal thunder from then front runners Jeb Bush and Hillary Clinton. It worked. He was all over the news and everybody knew he was running for President within hours.
I have developed a viable four point plan that would fix both NAFTA and immigration. I feel that neither party has fixed immigration since Reagan because if they did fix it, it would no longer be an issue. Nobody would be fighting for "Latino rights". It would be resolved. Hopefully, President-Elect Trump does not punt the political football but takes it head on.
First the general public has a need to understand exactly how NAFTA fully works. From the American point of view, we only see two things. A pro, cheap products and a con, lost jobs with factories moving to Mexico. It isn't that simple though. It is much more complicated than that and the implications of terminating NAFTA would be disastrous for everybody.
Under NAFTA, a free trade agreement, American factories can move to Mexico, manufacture and then send their goods, tariff free into the United States. The reverse is true with goods being manufactured in the United States. They can be imported into Mexico, tariff free. This is actually important because Mexico has extreme tariffs with goods from Asia, which brings me to my main point about why we need to keep NAFTA.
NAFTA is actually a positive treaty and in order to fully understand the economics of how this works, you have to fully understand economics in Mexico. The tariffs from manufactured goods coming from some countries in Asia can be more than 100% in some instances entering Mexico. This makes their prices so non-affordable to the average Mexican that they actually have to purchase the item in the United States. Mexicans refer to the trip as going for "compras". An illustrated example of this would be think of a mid-range 40" Samsung high definition TV. In the United States, this can be found for only $280 for at Wal-Mart (price accurate as of publishing of this article). A similar model in Mexico goes for probably $450 to $600 (disclaimer: after Trump won the election the Mexican Peso dropped to $20.8 Mexican Pesos for $1 USD; the figure in the example used was pre-election).
For lower income families who want to have new items, they have two choices. They can either pay for it in Mexico, as some larger stores offer credit (but much harder to obtain than in the United States) or they purchase it in the United States. There is also a huge market in Mexico for secondary items, but if you want it new, most people have only two choices, purchase one for a higher cost in Mexico or purchase one for much cheaper in the United States. The same goes for other electronics, like computers, tablets, and simpler things like clothing. I remember when I first moved to Mexico. Seems like I packed all my belongings except my underwear. Having to go to the store to purchase it, I was amazed to find boxer shorts at the cost of about $5 per pair. So as many Mexicans do, I ended up having to cross into San Diego to purchase boxer shorts at Wal-Mart and I think for $5 I got either a 3-pack or a 5-pack of Hanes. The price differences actually increased in border regions as one of the first things that Mexico's Presidente Peña Nieto did, with formal protest from all the border region governors was to raise the sales tax to 16%. The border region had a lower tax rate of 11% in order to help cities like Tijuana compete better with the lower prices found just across the border in San Diego. Peña Nieto saying that places like Tijuana should not get special treatment and pay the same tax rate as the rest of Mexico.
This also has had huge negative consequences to both economies. According to the International Business Times, this created a mass exodus of Mexicans doing even more purchases in San Diego with one local business leader predicting local sales in Tijuana would drop 20% and a few months after the change went into effect, according to the article, inflation spiked and the Mexican Peso has been losing value to the dollar. Prior to the raise in tax, the Mexican Peso was holding stead around $12 - $13 pesos for $1 USD. This has pumped billions of extra dollars into the southern U.S. economy and created thousands of jobs that would not exist if not for Mexicans purchasing their goods in the United States. The tax change, nearly 3 years later combined with a post President-Elect Trump dip, creates a negative situation where the Mexican Peso is valued around $21 pesos to every $1 USD. Due to this combination, it now cost Mexicans more to purchase the same items in the United States plus costs are going up in border region areas like Tijuana where there is a heavy cross-border relationship. The major problem with this is that the wages of the Mexican worker stays the same and are stagnant. This comes back to President-Elect Trump's anti-NAFTA rhetoric. It is actually hurting the U.S. economy. I know families in Monterrey and Mexico City who would pool their money together and drive to Texas and fill a van with everything the family and extended family needs twice a year. Due to the current exchange rate, instead of doing this twice a year, it may only happen once a year, if it all. It will have a negative impact on our economies.
Now it is time to circle back to my claim that one job lost equals two jobs given. We are about to go full circle. The factories in Mexico are setup only for manufacturing items that are to be sold in the United States, not in Mexico. Many of the people who take the lower-end manufacturing jobs from Americans are the same people who are most at-risk to cross into the United States illegally. These jobs are not high paying jobs. Most of them are 10 to 12 hour days, plus a half day on Saturday and typically pay between $800 - $1,000 Mexican Pesos a week. With the current loss the Mexican Pesos has suffered since the election, that is less than $50 a week, but it is enough to keep these people in a stable environment and from crossing the border illegally. Additionally, in all reality, due to having the stability of a job and if located in a border region, like Tijuana, Baja California, Mexico, would provide a path for these people to obtain tourist visas.
In essence, the factory worker changed status from at-risk to cross illegally into the United States to having a visa and spending their hard earned money in America. Everyday, at almost any hour of the day or night you can see people waiting in line at the Tijuana/San Ysidro Border Crossing in order to cross into San Diego to purchase the items that they cannot afford in their home country of Mexico. It is estimated that Mexicans doing cross-border purchases pumps over $7 billion into the southern United States border's economy.
That is how -1 = +2. One displaced worker in Wisconsin for instance prevents an at-risk Mexican from crossing the border illegally and gives an economic boost to our economy, providing more jobs in cities like San Diego. If NAFTA did not exist or had tariffs added to the goods produced in Mexico there would be some negative consequences. Mexicans would have little incentive to purchase items in the United States as the prices would be similar enough, that considering the border wait, customs, etc. there is little incentive to only save a couple of dollars. There would also be less jobs in Mexico, which would lead to more Mexicans crossing illegally into the United States as they wouldn't be able to find employment in Mexico.
This would also open the door for cheaper goods to be manufactured in Asia and Africa to start entering the United States, but it would keep more factories in the United States. When you think about that, is it really a good thing to keep factories here? Doing so would create not only a rise in illegal immigration, but it would also speed up the process of creating a robotic work force. I recently visited Huy Fong Foods, manufacturer of the famous Sriracha sauce. You would be amazed. Nearly everything in the whole factory is robotic. Very little human interaction and I believe they have approximately 25 - 40 employees. This is the only way, with how high taxes are and how many regulations there are that they can afford to manufacture in Los Angeles. By forcing factories to stay in the United States, so that we can still remain competitive with pricing, we are only going to be pushing tech companies to develop job replacing robots. The irony of this claim is it would put more people to work engineering the robots to replace other people's jobs at factories.
Americans have to face the harsh reality of this isn't the America of the Industrial Revolution. Factories are no longer high-skilled jobs in a place that is overrun by regulations, taxes, and unions. From an economic standpoint, why would an employee want to pay an American, low-skilled factory work $1,000 a week, not including the hidden costs that employers pay for every employee they have, when the same employer can pay less taxes, have less regulations, not deal with demanding and sometimes bullying unions, and pay a worker with the identical same skill set about $50 a week plus the hidden costs an employer pays in Mexico to have an employee. I have had employees in Mexico and it is not cheap, compared to their legal wages, but much cheaper than it is in the United States.
Now on the consumer side, would you want to pay 20 - 30% more for a product just because it was manufactured in the United States? Sure, for some it may be economically feasible, but for most it is not. The products coming out of Mexico are high quality products. They are not like the cheaper, lower quality products that are coming out of Asia. Yes, some high quality products come out of Asia, but that is the exception rather than the rule and most of the products that come out of Asia are ran by American companies (Apple, Boeing) or other worldly giants like Sony and Samsung.
Manufacturing can be done successfully in the United States, but that is for mostly high-tech and cutting-edge technologies. Do we really want to start a trade war over where Levi jeans or Bose speakers get manufactured? Bose, while manufacturing in Tijuana, still has their headquarters in the United States, does a bulk of their engineering and R&D here also. As time goes on, manufacturing jobs that were once considered difficult and complex, like cars, cell phones, and computers are now-a-days considered "low-tech" as the processes to manufacture them have been standardized. It is OK to let those jobs go down south to our brothers and sisters in Mexico. As I pointed out earlier -1 = + 2. It benefits our country much more than allowing the jobs to turned into robots here in the United States or to be sent to Asia or Africa.
We do need to provide training for the displaced worker, but in order for this to work, the displaced American worker has to be willing to learn. A displaced factory worker in a place that produces cupcakes would more than likely have a huge educational gap in order to gain the skills to get a job in our "new economy". This is challenging because how do you retrain a 55 year old who used to manufacture cupcakes in order to find a new job? That is a difficult part of the equation to answer, but the factory who is relocating should be responsible for paying for at minimal the displaced worker to obtain a Professional Certificate that would allow them to specialize in something that could lead to them finding new employment, more than likely in a more advance position with higher pay and better benefits. Losing the position could be a life altering move for the better for the previously displaced worker. On top of unemployment, if the displaced worker is studying for a Professional Certificate, the employer should also have to help supplement the income of the displaced worker if the displaced worker is studying full-time.
This will cost the company moving a good amount of money, but it would be short-term losses as most Professional Certificates or Associate Degrees are completed within two years. It is the cost of doing business and moving the factory down to Mexico. After paying for the education of the displaced American worker, the company eventually will start making higher profits than they ever did in the United States due to the much cheaper labor in Mexico.
There is one last final option that could fix the whole problem all together. President-Elect Trump recently revealed his new policy of for every new Federal Regulation added, the government must remove two regulations. The government needs to relax regulations, and yes, that means some overreaching EPA regulations also. On top of that we have to roll back taxes and give incentives to companies who stay in America. If we cannot give American factories a chance to compete against foreign products in a global marketplace, how do we expect them to stay in America? We also need to fix how employment unions work in the United States. They are way to powerful for the current state of America. There was a time in which both unions and the EPA were desperately needed. Things have evened out since then they are not needed as much as they once were in the past.
The problem with removing regulations, taxes, and limiting union powers is that it will create more problems. As mentioned earlier, many of these low-paying factory jobs in Mexico keep Mexicans from crossing the border illegally. It also brings people from all over Mexico to the border region, where they are able to build stability, get a visa, and finally make purchases in the United States, again worth billions of dollars a year. So if the factories stay, we lose a lot of money from Mexico and would lose just as many jobs along the border with Mexico and risk a larger influx of illegal immigrants entering the United States.
If you are a liberal or a conservative, you probably have doubts in my arguments. I will prove with one company how I my claims are true: Hostess. Hostess, was a company pretty much forced out of business because of terrible deals with unions. Americans all over the country were petrified that we would lose our beloved Twinkie. We almost did, but through bankruptcy, C. Dean Metropoulos and Co. and Apollo Management Group saved the Twinkie. How did they do it? Well according to Forbes, they inherited the company pretty much free and clear of all previous union contracts. Since they were free of the union contracts, the work force was reduced by 95% and do you know how they did that? Automation. Sound familiar? It is the same strategy that Huy Fong Foods uses to manufacture Striracha in America.
You must face the facts. Americans are going to lose jobs. The question is to whom: robots and automation or Mexico? Again, that is where I come back to -1 = +2. Two jobs are earned with one displaced worker and if a proper educational program was put in place as an amendment to NAFTA requiring mandatory employer paid Professional Certificate or Associate Degree education plus subsidized income during the transition period as a "tax" on the company for moving to Mexico, the factory moving to Mexico doesn't just create two jobs but also would put the displaced worker in an position to better themselves and earn more than had they stayed at the original factory.
America, the decision is yours, but I feel the case has been made loud and clear. Keep but change NAFTA to include employer mandated education for displaced workers because -1 = + 2. The math cannot be clearer.
Debate the issue, I urge you to comment below and discuss this ever so important topic as it is one of the items that President-Elect Trump plans on attacking during his first 100 days in office.
David Strausser is a graduate of Penn State. He holds a degree in Information Sciences and Technology and is currently seeking another degree in Business.
Copyright 2015. All rights reserved. All material contained on this site is sole property of David Strausser.