While Mexico-U.S. trade has soared under NAFTA, Mexico has grown faster as an export platform rather than a consumer market. Contributing to this phenomenon is a paradox associated with a new international division of labor: world-class productivity and quality are driven by first world markets while wages are set based on third world institutions. On a micro-level, this paradox is underscored in the automobile industry in Mexico. This industry has effectively been integrated into the North American auto manufacturing complex with impressive outcomes at the same time that wages hover at a fraction of U.S. levels. These results have created incentives to invest in Mexico based on low wages and guaranteed by the general imprimatur of NAFT A and the specific investment guarantees it offers. Although many argue that labor standards have little place in trade agreements, the NAFTA experience indicates that a lack of strong labor standards may contribute to distorting a trading relationship. lronically, the result dampens consumer markets in Mexico, thereby limiting trade, at the same time that U.S. workers are exposed to new downward pressures.
