NAFTA: Time for a Trade-in

The North American Free Trade Agreement has taken too many U.S. jobs away from the Rust Belt. Pro or con?

Pro: So Many NAFTA Casualties

The most conservative estimates indicate that NAFTA has cost the U.S. a minimum of 525,000 manufacturing jobs, and some estimates range as high as 766,030. These jobs have not been replaced by other manufacturing opportunities. In general, those who have lost employment as a result of NAFTA, as well as the roughly 3 million workers who have lost manufacturing jobs during the post-1994 period, have “migrated” into lower-wage employment in the service sector.

Ross Perot famously talked about a “giant sucking sound” of jobs moving from the U.S. to Mexico, but the picture has been more complicated than that. Mexico has suffered severely from NAFTA with the depression of its agricultural sector—its products couldn’t compete with cheap foodstuffs from the U.S.—leading to a mass relocation of rural residents into cities and later to the U.S. The combination of documented and undocumented immigrants has served as a ready-made low-wage pool for avaricious U.S. employers seeking to cut costs and increase profits. In addition, and ironically, employers that did relocate to Mexico from the U.S. and Canada have now begun an exodus, moving to even lower-wage areas such as China and Vietnam.

What the NAFTA experience really points to is that steps such as NAFTA, allegedly taken to “grow the economy,” increasingly benefit a smaller and smaller segment of those societies, including the U.S., that follow a “neo-liberal economic model.” In comparison, little has been gained by those who have lost their jobs (or the communities that shared the benefits of their employment) because of NAFTA.

The time has come for a renegotiated relationship that places the interests of working people and the environment ahead of the corporate bottom line. The same myopia that has our financial markets in meltdown shaped the thinking and objectives behind NAFTA.

Con: NAFTA Opponents Bark up the Wrong Tree

Rewriting NAFTA is probably going to sound pretty good to the U.S. public these days. How and when the current financial meltdown will be stabilized can only be guessed. One might have hoped the example of the Smoot-Hawley tariffs of 1930 would have forever poisoned the notion that higher tariffs protect U.S. jobs. Those tariffs were part of the unprecedented downward spiral into joblessness that we wish to preempt now.

Today’s NAFTA-jobs debate is a little like rehearsing Hamlet without the Prince. Since 1995, imports from Mexico have slightly more the doubled, while imports from greater China (China plus Hong Kong and Macao) have more than quadrupled. So the question of how trade affects U.S. jobs and wages is an increasingly Asian issue rather than a Mexican one.

As far as unemployment is concerned, increased labor productivity—rather than trade agreements like NAFTA—ranks as the predominant cause behind the shrinkage of manufacturing employment across the globe. On a percentage basis, Chinese manufacturing jobs actually have contracted far more drastically than U.S. manufacturing jobs, and China certainly has no NAFTA to blame for its situation.

An equitable fiscal reform that removed the unfair burden of health and retirement payments from employers and put it on consumption (via a sales tax) would help U.S. manufacturers facing foreign competition and boost the low rate of U.S. savings that causes our trade deficits. Reform is certainly needed, but reforming NAFTA is a distraction we cannot afford.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

TomV

The pro arguments always raise is where the heck is the money going to come from to pay for US manufacturing jobs? Let me use an example. Whether it's Miguel in Mexico or Yang in China, a product X is priced $19.99 on the shelf. I'm the consumer and need said product. What the pro side says is, hold it! That product should have been made here in the US! You know, the unionized, hard working, and will strike if you don't give me what I want workers. Now, in their place, I would not blame them for their attitude, but now that same item X on the shelf is $29.99, made by unionized U.S. workers so they can live the American dream. But where am I going to get the extra $10 to buy the now more expensive item X? And the answer is, where the protections and policies pro people want break down. Whether you remove the $19.99 item from the shelves or can persuade people to pay more for the same item, all you do is make life more expensive for everyone else, creating the vicious cycle of needing higher salaries, because guess what, in my job, I make item Y, and you need to buy one. That made in Mexico $25 one the store used to sell is gone, now banned by tariffs, so you get to buy my $35 one because I'm just like you. And where are you getting the extra $10 from? At least we aren't like that $50 one made in Europe where this cycle has already played out for years.

angry old man

I am getting more and more angry at the three words that have flooded the media over the past few weeks. These are "to increase profits." I am getting to hate the word "profit." I hope the elite all die from tainted $700 a bottle wine.

Phil Gramm was Right

We are a nation of whiners. Those Rust Belt jobs were going away long before NAFTA was signed. That they went south of the border or across the Pacific instead of simply disappearing only prolongs the agony of industrial dinosaurs like GM's inevitable demise. Decades of mismanagement, including poor product design, shoddy craftmanship, and yes, overpaying blue collar labor, are taking their toll. The sooner they're gone, the better.

Steve

Nobody stops to think that NAFTA has very little at all to do with American businesses making manufacturing investments outside of the U.S., namely in Mexico.

American, and other, manufacturers had moved and were moving to Mexico to access low cost labor for almost 30 years prior to the NAFTA being signed. With or without the NAFTA, this can and continue.

The NAFTA is, in essence, a tax reduction treaty (import taxes). The biggest effect that the NAFTA had at the time of its signing was psychological. Manufacturers saw increased viability in Mexico due to the U.S. government's willingness to engage in such a treaty with that country.

NAFTA, in and of itself, has very little to do with the issue of industry migration.

Squeezebox

If your neighbors aren't working, they aren't going to the coffee shop you own, and soon you're out of a job, too. Blue collar labor may be overpaid, but they also overspend.

Ray Martin

While NAFTA may be responsible for some of the job loss, the real culprit is China and India--these countries are taking high-paying jobs.

Yes, NAFTA is responsible for some of the loss, but the knowledge-intensive jobs are the ones that hurt the most, and we need these jobs for our college graduates and future workers.

chuck stubbart

All trade is good.

tom

The problem is not so much free trade or NAFTA, but mercantile free riding. We allow Asia to get away with currency manipulation, theft of intellectual property, one-sided trade agreements that allow them less equitable access to the U.S. market than is returned, and non-tariff barriers. Also stupid corporate tax policies that allow companies to accumulate foreign profits overseas tax free, which gives them more incentive to invest over there than in the U.S.

This has created an enormous trade deficit, which has spawned the imbalance in money flows, which has helped to cause the current financial meltdown.

jimmy

NAFTA is not responsible for the loss of jobs in the Midwest. The UAW is responsible for the job loss. The great corporations cannot pay high wages with full retirement at 48 years old. This is the situation the UAW left our Rust Belt corporations in. To survive, these corporations must move these jobs off shore. Free trade has been a huge bonus to the east and west coasts.

random

The loss of manufacturing jobs is due to a confluence of factors. Improvements in technology and workplace automation mean fewer employees per plant. High union wages and all-or-nothing rules when it comes to hiring, pay, and layoffs that don't respond to market demand mean reluctance to build new factories and companies almost always a step behind their non-union competitors. Cheap Asian labor and yes, Chinese currency manipulation, coupled with consumer hunger for cheap products regardless of consequences mean a permanent competitive disadvantage. NAFTA is simply a small factor that came into play and with the power of the Chinese manufacturing economy, it's influence on American jobs is less than ever.

Interestingly enough, those worried about illegal immigration from Mexico and in favor of drastically altering NAFTA if not repealing it completely, may just give illegal migrants even more of a reason to jump borders into America as the factories where they work are shut down or downsized. And as for loyal union workers who believe that non-union shops have no obligation to treat their employees safely and pay them fairly, I think that OSHA and the American legal system might disagree. Or they can just ask assembly line workers for Honda, Toyota, and Hyundai what it's like working without union backup. Because non-union shops can recognize exceptional performers and more easily resize their workforce, there's no need to close entire plants when operational costs eat into profit margins and lead workers are placed by merit rather than rank. As a result, the company is more profitable, workers can excel and be truly rewarded, and companies react to the market, staying more profitable and keeping more jobs going, even in bad times.

Juan M. Gomez

In the article, there is no mention of agricultural subsidies in the U.S. that starve to death the campesino who has to flee to the U.S., becoming an illegal alien and therefore a criminal. Wow, is this hypocritical or what? Inhuman and immoral, too.

There is no mention of the jobs that have been created by the increase of trade due to NAFTA. Corporations got cheaper labor outside the U.S. They do not defend the interests of the American worker but rather those of their investors. What's new?

David Michalek

I think recent events on Wall Street seem to indicate the theories that have underpinned economic thinking since the Ronald Reagan era are, to be charitable, not valid. In fact it seems that the people promoting these ideas, of which NAFTA was one, have no idea what they are doing and were really simply running a con game. They have been exposed as basically crooks who have been running a shell game for several decades at the national expense. The fact of the matter is that the idea of a nation is still important. Rules and regulations are still important. NAFTA would make sense in regard to Canada but not Mexico. The Canadians have a concept of law and the same legal framework that we have in the U.S. Mexico has a different framework. If you have ever studied the legal underpinnings of Mexico, it should be apparent. In any event, it is not an issue of labor unions or competitiveness; that has been laid to rest. The issue is that we have all been subjected to a philosophy controlled by con artists and their fellow travelers. Our free trade agreements seem to have been designed to destroy the economic and scientific pillars of the United States. The free trade agreements are lopsided and not in the national interest.

Ken

There are two points that I never seen in any of these debates about American manufacturing jobs. One is automation. I worked for a specialty power company for several years, and I know firsthand how much money is spent worldwide on automating factories. Just look at what Detroit does--the workforce requirements have been drastically reduced. Not all of those jobs have been lost overseas. The second point is this: We are raising four sons, and honestly, we are not raising them to work in a steel mill or a plastic injection mold factory. Our dream, and many others' dream, is to send them to college to get a "decent" job. Even if we do somehow wrestle some of these jobs back, my sons won't be working there.

Bhavik Patel

If NAFTA goes down, it will be the end of oil from Alberta for America. It is said that the Oil Sands of Alberta are second to only to the Middle East, which provides America with a safety net it needs (I think Brazil has discovered some off its coast that may be larger). The agreement allows for increases in oil sent to America but does not allow for any decreases to the oil pumped into America.

If NAFTA is taken down, forget trading with Canada. As every investment in America is turning to dust, investors will look elsewhere. Canada may just find another trading partner that will pay more for its oil. As is now, the country is not reaping the profits it should due to the high oil prices.

During the Presidential election very early on, the dissolving of the agreement was thrown around for the sake of American jobs. It's not as easy as it sounds, because once it is gone, gas prices will rise very quickly, and it may lead to lesser jobs as products that are shipped to Canada and Mexico will decrease, which will lead to factories shutting down.

Instead of worrying about NAFTA, it would be wiser to look over your credit and reduce your debt for those in America. Loans have come too easily to buy that first car for your son or daughter. It is time to get wiser and live within the needs and not the wants.

Immigrants are taking work only because Americans simply do not want that job. Immigrants are the ones helping run the economy; they are the ones buying the GMs in full cash as they do not live off credit. They only want a better life for their children, and to get it they will work longer hours at harder jobs that pay less. The main reason is Americans do not want the jobs.

Colleen

Competition--not global policies like NAFTA--has lowered prices. The price to manufacture an item has gone down when the work is outsourced; however, two things: The footprint used to 're-import' items is much greater than if the item was made here (oil, gas, pollution, etc,), and the cost savings are mostly usurped by the companies as profit--not a huge savings passed down to the American consumer.

Also, lots of lost knowledge here. We have a vacuum in a lot of industries where the kids have no idea of the basics (for example: basic accounting--outsourced, basic IT--outsourced, manufacturing--outsourced). It will take a generation--if ever--to recoup it here in the U.S.

Also, I can't buy your product if I don't have a job.

My employer--a retail (supermarket) industry that only sells to the U.S. consumer--outsources all IT across the country, and what they keep here are mostly all H-1B visa people. The price of the product has risen the same as similar companies who don't outsource. Where's the savings garnered from outsourcing?

These coward companies will continue to buy up smaller, similar industries to avoid competition and corner the market. What happened to deregulation?

Stewart

Isn't it interesting how our American corporations look to the U.S. for protection whenever their interests are endangered, but never hesitate to move offshore to avoid taxes and take advantage of offshore banking. While the U.S. has for too long raised the bill on companies to operate here, the open trade agreements only serve to export our standard of living overseas, while offering us the temporary relief of low-priced consumer goods. When I was growing up "made in China" meant junk, and it still is. Now go to Wal-Mart, and everything is made somewhere else.

Petras Vilson

As a Canadian, I've heard many Canadians complain about manufacturing jobs moving to the U.S. and Mexico. But I've also read our U.S.-Canada trade volume has swelled to an enormous $1 billion a day. It takes an hour or two to cross the border these days because of the huge number of trucks moving in both directions.

My suspicion is that there are many winners and some losers--and certainly consumers must be benefiting from lower prices. And I'm also old enough to remember pre-NAFTA high unemployment numbers and high inflation in both the U.S. and Canada during the 1980s.

As painful as NAFTA has been to specific industries, and many Canadians have howled about easy American access to Canadian resources (oil and minerals), the main political parties here have reluctantly embraced free trade. And in the wake of global trade talks failure, our Conservative party is pursuing a bilateral deal with Europe.

To American anti-free trade types: Be careful what you wish for. Some Canadians want to re-open NAFTA to restrict easy oil exports to the U.S. and restrict imports of U.S. steel, food, machinery, services and planes...things the US does particularly well.

I think both countries' economies are bigger and more competitive with NAFTA than without.

OC Bound

NAFTA isn't the issue. China and India are the issues; then add greed. The entire world only wants what the United States has accomplished, wealth. What they don't understand is, without U.S. consumer power--which comes from jobs created here in the U.S.--we won't be able to afford to purchase goods or services, no matter what the cost. Not to mention that without jobs, we can't pay taxes, and our whole governmental structure will fail. They say free trade is good for poor economic countries, but yet jobs that are going overseas are not being replaced here on our homeland, and money saved on hiring people isn't helping our economy; it's just making CEOs more bonus money. It also seems that all the free trade is being done by countries that want the U.S. to purchase their goods, but they don't want to purchase our goods. Look at our export dollars? Bring the jobs back to the United States, along with the quality and customer service.

Bob

Once again, we have fallen on "sides" of the issue rather than tackling the problem head on. American companies are run only for those at the top. Period. Not shareholders like us. Certainly not for the employees (which is debatable since no company should be run for employees but at least treat them better than a disposable commodity). The CEOs and board members run every company like a private bank, raking in millions while the world falls down around them.

Need proof? If I am a CEO and I screw up royally, like I give trade secrets away, put Americans out of work, and generally make a mess of the company I am steering, what happens? I get fired, like everyone else. Except I get $10 million-plus for my screw up. And if I got the stock price or some other benchmark up to a certain point, I can walk away with more. So it behooves me to do whatever to get those numbers up, even if it ruins the company later. I have talked to a number of students who are in business school right now who are being taught to make companies their personal piggy banks. And is anyone in this country today still Pollyannaish enough to believe that these CEOs are paid these high salaries to do legal things, especially outside the country? Everyone is shocked that products from China are tainted. These CEOs aren't. They know how these products get made cheaply. They just don't care. As long as they make money, who cares if people get sick? Or die.

Mike

The article makes certain to point out that lost jobs have not been replaced in the manufacturing sector but does not give you any facts to advise how many jobs have been created in the logistics industry as a result of NAFTA.

Bigger than NAFTA is the question: Why and how does a Communist country (China) obtain Most Favored Nation trading status? Which in turn has helped expand the import/export imbalance.

VIC

I agree, NAFTA is not the problem, but I believe the majority of all lost manufacturing jobs have gone to China, a Communist capitalist nation. We need to bring some of these lost jobs back to America and stop doing business with a Communist nation.

Al

Free trade has led to 30 years of trade deficits that are now rising at an exponential rate. Those trade deficits are the root cause behind the current financial crisis. The toxic paper behind the housing bubble may have been the tipping point, but the root cause is the $6 trillion debt owed to our trading partners. Those partners signal to the Treasury that they were considering not renewing the loans is what drove the bailouts of Fannie Mae and Freddie Mac. For years the U.S. has bought into the free trade myth that assumes that comparative advantage is at work, even in the face of many of the comparative advantage assumptions being violated. Our trading partners have been on an "exports first" strategy. They are only interested in doing business with us as long as the net trade balance is positive for them and negative for us while we have followed a strategy that was not exports first. Thus, the U.S. has continually had trade deficits. The trade deficits are outflows of wealth from the U.S. to our trading partners. For example, if I give you $2 per day and you give me back $1 per day, eventually I'll run out of money and have to borrow from you in order to keep buying from you. This is what our leaders have allowed with the free trade deals they have signed. As we continue to buy from China, China recycles the dollars we pay them by buying investments in the U.S.--like lots of securitzed mortgages (read that as toxic paper) that allowed the housing bubble. So, as the U.S. has extended leverage by borrowing from our trading partners the money that we had paid them, we were able to continue living on borrowed money. But as soon as our trading partners felt the wealth we had transferred to them and they had lent back by purchasing toxic paper from us was threatened, they indicated that if the U.S. would not guarantee the paper, they would not renew loans.

Net net, Free Trade is not good. What we need is fair trade--trade where we raise tariffs if we run trade deficits with a trading partner until the trade balance is at least neutral. It would even be better if we ran a trade surplus.

So folks, it is time to wake up and smell the coffee. NAFTA and deals like it that result in a transfer of U.S. wealth to our trading partners are not good for the U.S.; they are bad. Very bad. They need to be tossed out, and new agreements that are at least trade balance neutral need to be put in place.

northern exposure

NAFTA is not the problem; labor intensive manufacturing is the problem. Technology will upset every economy that depends on industrial labor. Unions cannot protect jobs from technological advances, and if they try, then employers will move the jobs out of country, send them to China, Mexico, etc., and then move their production back to North America when they have eliminated the need for labor or reduced it to an insignificant cost. This is the future; better get used to it. The Chinese, Indians, and Mexicans will all experience factory shutdowns and unemployment as companies reduce their dependence on labor through technology. This is as natural as evolution.

Loyd Eskildson

Free market theorists have lost credibility as a result of the financial market disaster; how long will it take for our multi-year and growing jobs crisis to also convince enough people that free trade is also a disaster?

Donald Steier

If anyone has been keeping track and actually reading the articles in BusinessWeek, you would know that one article covered the fact that for the last 20 years of free trade the living standards of the middle class have stagnated while the good-paying jobs are being exported to other countries and very few are being created here. Between NAFTA, our corporate and business tax laws, and our government's financial policies, it is a wonder that we are not all getting MBAs and working at positions where we ask our customers "Would you like fries with that, sir?"

Shane

"NAFTA goes down, it will be the end of oil from Alberta for America. It is said that the Oil Sands of Alberta are second to only to the Middle East, which provides America with a safety net it needs."

Not really, that is an effect of high oil prices. You can't afford to efficiently remove the oil from tar sands without a price per barrel over $100. Anyway, the quicker we move to alternatives the better.

As far as NAFTA. We need fair trade, not free trade. As others have mentioned, the vast majority of our corporate leaders are in cahoots with our politicians to drain the life's blood from the American population. They are in a class by themselves (You know the 401k's they pushed on us? Well the politicians have pensions) and suffer naught from their own policies.

Although Indian and China are substantial problems, let's not forget there are millions of poor people in South America waiting to be exploited. My suggestion is that we enact high tariffs on all imported goods, seal the borders from illegal immigration, and demand responsive trade policies from our trade partners.

You'll find only the top 5% of Americans will suffer from these policies. The rest will benefit.

Bob

My question is always, if the item is made cheaper elsewhere, and imported into the U.S., where the hell are we supposed to get the money to buy these items. We move from job to job to job, because as soon as we can, we offshore every type of job. Well, we as stockholders want to increase dividends. Let's offshore executives. Surely the overseas guys are smarter than ours. That is what they say about us. I have never met (and I have met a lot) a CEO who had that much more on the ball than the average guy working for him. The only thing they usually have is the ability to run people over to get their way. Not a very good attribute to have. And to all those MBAs out there using the companies they are working for as their personal piggy banks (overinflated numbers for big bonues), I think your days are numbered.

willy

The bottom line in all of this is that manufacturing jobs will only come back to the USA when our wages are equal to China's or India's.

No Republican or Democrat will ever say that out loud, however.

joni

Well, I guess we can all start learning Indian. It is at companies that have jobs that they are bringing in Indians, not even giving a chance to Americans. We are giving our country and have given our country to India now, and it is too late to get the jobs back. I know a company that is rather large has a person that is now contracting more then 25 Indians instead of contracting 25 Americans. In the state of Oregon, we are in trouble. We have no rights, we have no jobs, and we won't have them. Because our leaders think this is okay. When your Harvard sons can't get jobs because the smart Indian got them, we are in trouble. Lots of trouble.

Dwain

I remember when I was in my teens, just out of school in the mid 70s to early 80s I could find a job anywhere with only a little skill. Good paying jobs with good benefits. Today you can't do that. Unless you have a Bachelors degree and you can move to the big city. I blame free trade for our economic mess we have today. Yes, it has brought cheaper products to us through Wal-Mart, from which they have become very rich due to NAFTA, but we the working class have suffered, and will only continue to suffer. The lower class and the Baby Boomers of the 70s and 80s who were lucky enough to retire before this economic turmoil hit us can reap the rewards of cheap products. And Wal-Mart will always have a steady pool of low class workers and retirees to buy their products and keep them rich, but us working class of today will not reap much reward, because we won't have any jobs to buy those products and live the American dream.

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