The plunge of the peso and the sharp drop in Mexicans’ purchasing power will cost tens of thousands of American jobs, the Federal Reserve Bank of Dallas has estimated, and private economists say the damage to the U.S. economy will be even greater.
The peso’s drop is expected to slash about $10 billion, or more than 20 percent, from American exports to Mexico this year, business and government economists say - turning a healthy trade surplus with Mexico into a large deficit.
The Dallas Fed puts the resulting job losses at 20,000 to 30,000, but private economists expect the losses to run into the hundreds of thousands.
The regional bank’s research, completed last week, will go to top Federal Reserve officials as they meet in Washington this week to consider a rise in interest rates.
Opponents of free trade with Mexico have focused on how many jobs might be lost in the United States as manufacturers relocate south of the border to take advantage of lower labor costs there.
But some economists now foresee an even greater toll from a slump in American exports to Mexico. Demand in Mexico, they reason, will be choked off both by the loss in the peso’s purchasing power and by a likely slowdown in that country’s economy.
The new, unmapped territory of free crossborder commerce resists ready analysis, economists caution. Uncertainties include the chances for approval of the $40 billion American rescue package, the peso’s exchange rate and the fortunes of both nations’ economies.
Opponents of the administration’s plan to provide $40 billion in loan guarantees call it a bailout for investors. They say the peso’s drop has raised the costs of free trade and borne out Mexico’s risks.
The administration says the number of American jobs at stake leaves the United States no choice but to become co-signers.
But no one expects the peso or the Mexican economy to rebound sharply any time soon. Economists say that even with loan guarantees, American exports will fall sharply and Mexican exports will increase.
The Dallas Fed’s estimate of job losses in 1995, after the peso’s plunge of nearly 40 percent since Dec. 20, includes jobs lost to increased imports and as a result of illegal immigration.
That estimate is higher than the 17,320 jobs the Labor Department said were lost to Mexican imports or job shifts last year, the first under the North American Free Trade Agreement.
In 1994, the administration said, those losses were more than offset by a gain of about 140,000 jobs as the total value of American shipments to Mexico rose in excess of 20 percent.
Several private economists said the peso’s plunge would more than erase these gains.
The WEFA Group, a Philadelphia-area forecasting firm, is among the most pessimistic, seeing the evaporation of $21 billion in exports and 500,000 jobs.
Daniel Bachman, a senior economist there, said electronics, automobiles and other consumer goods would show the sharpest declines.
“When consumers are hit with lower incomes, they put off discretionary purchases,” he said, “and autos are discretionary purchases.”
According to unpublished research by the Dallas Fed, exports to Mexico will fall from an estimated $49 billion last year to $38 billion this year, a figure roughly in the middle of estimates by several leading private economists.
“Clearly, there will be some big losers,” said Carlos Zarazaga, executive director of the Center for Latin American Economics at the Dallas Fed.
He noted that Wal-Mart, the largest American retailer, has already halted its Mexican expansion plans. Job losses will remain below 30,000, including the damage from higher imports and illegal immigration, he said, as companies find domestic and foreign buyers.
Many U.S. companies, including automakers, have already asked the Mexican authorities to let them raise prices in pesos to reflect the currency’s weaker purchasing power.
Mexico, in most cases, has agreed, acknowledging the higher costs that American manufacturers face.
Mexico pulled virtually even with Japan late last year as the United States’ second-largest export market after Canada, affording Washington an estimated $5 billion trade surplus.
Mickey Kantor, the U.S. trade representative, said in an interview earlier this month that the surplus might well vanish this year. But most economists predict a deficit.
Jose Barrionuevo, a senior economist at the Chase Manhattan Bank, expects a gap of about $5 billion. He figures a $5.6 billion increase in Mexican shipments to the United States and a $4.5 billion drop in the other direction.
Mexico cannot increase its trade with the United States any more than that because last year’s 20 percent-plus jump pushed its exporters near capacity, Barrionuevo said. Other economists say that Mexican exporters are more likely to crowd out goods from low-wage nations than from the United States.
But some leading forecasters are taken aback by their own estimates of how many jobs Mexican imports will cost. DRI/McGraw Hill forecasts the loss of $10 billion in sales this year and a total of 350,000 jobs over two years, compared with the outlook if there were no Mexican crisis.
The firm forecasts 6.1 percent unemployment in the United States early in 1997, compared with 5.9 percent had the peso maintained its value.