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NAFTA: A Question Of Economics

By Mark Rainey

It is commonly believed that free trade between nations is a mutually beneficial arrangement for all parties involved; indeed, this is held to be an absolute truth. Though free trade is undoubtedly the most effective form of commerce between countries from a purely economic standpoint, increasingly we find that our so-called "free trade agreements" are horribly lopsided; indicative of these fiascoes is the North American Free Trade Agreement. NAFTA is a lopsided and detrimental trade deal, hastily hammered out by an inexperienced group of American negotiators under constant pressure from then president George Bush. (Save 16) I have three primary concerns about NAFTA, which I will detail in turn throughout this essay. In looking at the effects of NAFTA, however, one must first understand the circumstances surrounding its conception and subsequent development.

In June 1990, president Salinas of Mexico met with American president George Bush to discuss a proposal to expand Mexico's maquiladoras program (named for the Maquiladoras Act of 1972) by establishing a free trade agreement between Mexico, America, and possibly Canada; anxious to find something to make him look good for the upcoming election, Bush jumped at the idea, and immediately began lobbying Congress for "fast-track" authority to bypass Congressional involvement in the subsequent trade negotiations. That hurdle finally overcome, president Bush hastily assembled a group of ad-hoc trade negotiators and threw them headlong at the professional Canadian negotiators and the high-priced Washington insiders and ex-government employees that had been hired by Mexico. Given a mere 14 months by president Bush to complete the deal, our representatives cut corners, conceded tough issues, and basically let the other two interests control the make-up of the agreement. On August 12, 1992, president Bush announced completion of the treaty and hailed it as a major U.S. victory; by November, it had been signed into law. (Save chapter 2)

What emerged from these back-room dealings was a monumentally lopsided agreement. We dropped most of our tariffs immediately while Mexico was allowed to phase them out over a period of 15 years. (Save 1) We are barred from establishing purely U.S. owned financial institutions on Mexican soil, while they are allowed %100 ownership of similar interests in the United States. (Save 7) Mexican truck drivers were allowed access to the entire continental U.S. while our teamsters were not extended the same privilege in Mexico. (Save 4) Mexican business owners worked closely with negotiators to protect their interests, while our companies were actually encouraged by our government to move to Mexico! (Save 21) This constitutes my first concern, which is the cause of the other two; not only were American interests ignored by the negotiators, they were purposely circumvented!

The second concern created by NAFTA is our balance of trade. According to the San Francisco Chronicle: "The year NAFTA went into effect, U.S. exports to Mexico were $41.6 billion and imports $39.9 billion. Last year, exports reached $56.8 billion, imports $73 billion." (Report Card) It would appear, by these figures, that we went from a $1.7 billion trade surplus to a $16.3 billion trade deficit under NAFTA, but those numbers do not reflect the true nature of our trade balance with our southern neighbor. "Altogether, more than half of the U.S. 'exports' to Mexico never entered Mexico's domestic market. More than 30 percent of the U.S. exports to Mexico were tools and machines used to build more Mexican factories." (Save 50) Less than 19% of our exports actually enter the consumer market, while the remaining percentile consists of unfinished manufactured goods which are assembled in Mexico and re-exported to America. (Save 50) In short, NAFTA has provided us with a lopsided trade deal; one in which our country spends exponentially more than it earns.

Critics are soon to dismiss this, stating that a few billion dollars are insignificant when stacked next to the $3 trillion gross national product, and they are right. The trade imbalance, which now averages $19 billion a year, is a drop in the bucket of our nation's economy. Though the trade imbalance is not a problem in and of its-self, and might actually be considered encouraging to economists, it is proof that manufacturers are leaving our country in droves.

This brings us to my third and final concern: the loss of American jobs. Ever since the 1970's, there had been a steady trickle of American manufacturing jobs to the south of the border. American companies found that moving their factories to Mexico, where the minimum wage is $.58 per hour and environmental laws are rarely enforced, lowered their production costs even though the U.S. had tariffs on the import of those items. Mexico began to actively seek out U.S. manufacturers in 1972 when they passed the Maquiladoras Act: a law designed to exempt international companies from certain environmental and labor laws. Once NAFTA became law, the trickle of investment became a flood. By 1993, there were 2,200 maquiladoras factories operating along the northern border of Mexico; a figure which was increasing at a rate of 125 per year. (Save 48) The total effect that NAFTA has had on the jobless rate may never be known; President Clinton claims that NAFTA has actually created 311,000 new jobs in America, while critics have stated that as many as 420,000 jobs have been lost. (Report Card) A study by UCLA has found a "near zero impact" on the actual number of jobs available in America, (Report Card) while the firm of Challenger, Gray & Christmas report that NAFTA is partially to blame for 475,000 layoffs in 1996. (Don't Judge A Survey) As with so many things in life, however, the pertinent question is quality, not quantity; and here we find that the U.S. is losing dramatically.

The Economic Policy Institute has reported that each manufacturing job in this country supports an average of 4.21 "secondary" service jobs. A retail job, on the other hand, only supports .94 additional jobs while business service jobs (banking, insurance, etc.) only support 1.47 secondary jobs. (Save 28) The reasons for this are quite simple: manufacturing jobs pay well and provide benefits to the workers; these workers then raise families and spend their money in the community, buying groceries, shoes, gasoline, etc. Business service jobs do, of course, provide the similar pay/benefits, but they are finite in number because the demand for their services is finite; while you buy gas and groceries every week, you rarely call upon the services of your insurance agent. In addition, many of the available well paying jobs require a level of education that the average assembly-line worker does not possess; in order to get one of these jobs, it is necessary for that worker to expend the time and money of returning to school- time and money which the average worker can not afford. The vast majority of the available or newly created jobs are in the retail service sector; retail and non-business service jobs are plentiful, easily filled, require a lower level of skill, and are therefore less valuable. Those that work in this area often find it difficult or impossible to raise a family due to the lower pay and lack of benefits. Laid-off factory workers are increasingly being forced to enter the third occupational area and sometimes work as many as three of these jobs as the better jobs become more and more scarce. Besides, even the most elementary economics student will tell you that an increase in the labor supply will depress wages.

Those that do find new jobs can resume their lives; but there are growing numbers of workers who are unable to find work, or are relegated to jobs which provide poverty-level wages. The government has reported that our nation is close to full employment, the most recent statistic being 4.7%; but their figures are untrustworthy at best, and deliberate lies at worst. According to Lester Thurow, a senior professor of economics at MIT:

In the fall of 1995, America's official unemployment rate was 5.7%. But like an iceberg that is mostly invisible below the waterline, those officially unemployed are just a small part of the total number of workers looking for more work. Adding together the officially unemployed (about 7.5 million), those who say they want to work but do not meet one or the other of the tests for being actively in the workforce and therefore are not officially counted as unemployed (another 5 to 6 million), and the involuntary part-timers who want full-time work (approximately 4.5 million) yields an effective rate approaching 14%. (Future 165)
Thurow also states that there are "8.1 million American workers in temporary jobs...and 8.3 million self-employed 'independent contractors'" (Future 165); neither of these groups receive any benefits and they both suffer from low wages and a mind-numbing lack of job security. In addition, the Federal Bureau of Labor Statistics states that the homeless (5.8 million) and anybody who is unemployed but actively looking for a job (no figure available) are not actually counted as being unemployed.

All these facts lead me to the unavoidable conclusion that, although it cannot be proved that the total number of available jobs have been effected, the quality of the jobs definitely have. This situation places on our society an increased burden; it increases the number of poor while lowering the number of people able to give time and money to charities which help the displaced, this theoretically leads to crime:

According to a study conducted by the University of Utah, for every one percent increase in the jobless rate, homicides increase by 6.7 percent, violent crimes by 3.4 percent, crimes against property go up 2.4 percent, and deaths by heart disease and stroke rise by 5.6 and 3.1 percent, respectively. (Downsize 10)
Admittedly, one cannot presume to claim that these growing national trends are solely the effect of NAFTA, but I contend that our free trade policies as a whole ARE to blame for these figures. Unemployment IS a problem. Underemployment IS a harsh reality for an increasing number of Americans.

In all fairness, however, it must be stated that history has shown that the advancement of society always leads to the displacement of workers with obsolete skills. Farming machines put farmers out of work, so they went to work at the factories, which put the artisans out of work, and so on. Indeed it is historical fact that every major advancement in the history of the world caused somebody to suffer while other's prosperity increased exponentially. It can easily be argued that society as a whole was much better off in spite of the suffering of a minority; I contend, however, that our society has reached a point where we can afford inefficiency. Though the economic model states that importing goods is necessary to free sufficient labor so that new industries and entrepreneurial interests may be created; our technology has advanced far enough that it will continue by it's own momentum. Perhaps we will progress slower than we otherwise might, but we can afford the luxury of protecting our citizenry from unnecessary hardship.

In conclusion: I have shown that unemployment has risen since the advent of lassize-faire trade, and contend that the former is a symptom of the latter. I have demonstrated that jobs are leaving the country, I have demonstrated that investment capitol is leaving the country, and I assert that there has been and will continue to be an overall decline in our country's standard of living. Though turning a blind eye to our nation's suffering may increase our wealth in the distant future, the truth remains that our unemployment and poverty levels are unacceptable; an end to NAFTA and similar free trade agreements is clearly the solution.

Works Cited

Perot, Ross and Choate, Pat. "Save Your Job, Save Our Country" Hyperion,1993

Moore, Michael. "Downsize This!" Crown Publishers Inc., 1996

Thurow, Lester. "The Future Of Capitolism" William and Morrow Company, 1996

"NAFTA's Report Card" www.sfgate.com/cgi-bin/chronicle/article.cgi?file=MN66505.DTL&directory= chronicle/archive/1997/09/10

Crudele, John. "Don't Judge A Government Survey By Its Cover" New York Post. Friday, November 7, 1997.