Mexican Oil and NAFTA

I like metrics and have been compiling metrics for different things since I was child. One of my favorite metrics, that started out as a hand drawn graph that I converted into a spreadsheet several years ago, is the monthly price of silver versus gold. I became interested in silver as a result of the Hunt brothers (Nelson and William) trying to corner the silver market. My family was in the jewelry business and there were many conspiracies floating about how the silver and the gold markets were being manipulated. I started hand drawing a graph showing the difference in the price of silver versus gold. The price of silver was supposed to be 10% of the price of gold. The conspiracy theory was that if you could predict the deviation of the price, you could make a killing by buying, or selling silver, or gold. I couldn’t afford gold, but I started collecting pieces of silver. From there, I started building data metrics as a result of my interest in computers.

NAFTA was the central point of discussion in Mexico and the United States when I saw it as an opportunity to go into business for myself. Thus, I started to create economic datasets. I even published a white paper on NAFTA; “A Hesitant Handshake Between Neighbors” in May of 1991. [download] Obviously, NAFTA continues to be very controversial. Ever since then I have collected economic metrics over the years.

One of the things that I like to point out when discussing NAFTA with individuals, both in Mexico and the US is how NAFTA saved Mexico from the perils of oil. Oil has been at the center of many political intrigues and many oil producing countries have suffered from too much dependence on oil production. Mexican commercial oil production began in the early 1900’s as the expansion of the railroads developed a market for Mexican oil exports. Although oil production increased over the years, it wasn’t until 1973 that Mexico began to extensively rely on oil exports for government revenues. By 1977, Mexico was leveraging oil reserves to borrow money through the international markets. Much of the borrowed money went to Pemex, the Mexican government oil company. Like all oil producing countries, the Mexican economy would suffer as oil prices fluctuated over the years.

Oil is a commodity that has a finite limit – a country eventually runs out of it. By the late 1980’s, after a serious economic turmoil in Mexico, the PRI government, under president Carlos Salinas de Gortari, knew that that country needed to diversify its economy to survive. Mexico could not continue to depend on oil as its primary source of country revenue.

Canadian prime minister Brian Mulroney, Mexican president Carlos Salinas de Gortari and US president George H. W. Bush began negotiating in the early 1990’s. NAFTA was controversial in all three of the countries. In 1992, the three countries signed the agreement. In 1993, the US Congress ratified the bill and president Bill Clinton signed NAFTA into law on December 8, 1993. On January 1, 1994, NAFTA went into effect.

NAFTA encompasses many economic metrics that are different for each country. I plan on adding more analysis and metrics about how NAFTA has affected trade for Mexico and the United States in upcoming posts. However, today, I just want to share a simple infographic showing how Mexcian oil export and production has shifted over the years.

I realize that NAFTA is very controversial for many people. It has forced changes in the lives of many people, both in the United States and in Mexico. Like all forced changes it has been painful. However, it has been my contention then, and now, that without NAFTA, Mexico would be in serious economic trouble today. Look at the metrics I shared with you above, and you can clearly see that the dependence on oil was untenable.

I understand that there are many more factors that play into the economy of a nation. In upcoming posts, I will be adding more of those metrics to continue to demonstrate to you the benefits of NAFTA for both Mexico and the United States. Today’s post is just a glimpse.

NAFTA may be to blame for many problems in the three countries that comprise NAFTA; Canada, Mexico and the United States. But for Mexico, NAFTA is the solution to the oil dilemma that many oil producing countries are facing today.