Issue 17: Is NAFTA Good or Bad for Canada, the U.S., and Mexico?

John M. Melle makes very good arguments in favor of NAFTA. NAFTA was enacted in 1994. Since then, our total trade with Canada and Mexico has doubled, Mexico’s exports have shifted to manufactured value-added goods, and American exported services has increased by nearly 75% since 1993 (pg. 321-322). Ultimately, the facts and figures show that there has been a positive economic improvement. Mexico has seen increases in their manufacturing jobs, Americans get cheaper products and are allowed to sell products for less in those countries, and both Canada and Mexico have received cheaper American services and goods that would have been more difficult to provide before the enactment of NAFTA.

So why is there any oppostion to the trade agreement at all? Sandra Polaski does a good job of summarizing the reasoning many opponents to NAFTA have. The major results opponents point out is the loss of agricultural jobs for Mexicans in Mexico and the loss of manufacturing jobs in the United States. Here is an interesting debate pre-NAFTA between candidate Ross Perot and Vice President Al Gore:

Here is another argument against NAFTA:

These arguments depict what John Melle’s statistics do not: that NAFTA has in fact caused a great deal of economic harm to our country in indirect ways. For instance, many believe NAFTA has put Mexican farmers out of business because American farms are able to produce food at a much lower cost through the use of subsidies and technology. Thousands of workers in Mexico that once worked on those farms have entered America illegally and legally in the search for work. If NAFTA was never signed and made into law, it’s logical to conclude that there may not be anywhere near as many illegal immigrants or the costs that are inherently associated with them. Further, although American service industries are expanding into Mexico and Canada, our manufacturing businesses are losing tremendous amounts of jobs and are forced to move into these countries, in particular Mexico.

I believe NAFTA works effectively but should also come with many other stipulations. I believe it is possible for us to benefit from free trade while also cutting off those negative characteristics of NAFTA. We need stronger borders, we need to do a better job of protecting American jobs, and we also need to be sure that our trucking industry is not dismantled in favor of Mexican truck drivers. In 2004, NAFTA created a U.S. trade surplus of 14.2 billion dollars. This is tremendous, but I believe our trade surplus could be and should be even higher.

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Filed under Issue 17: Has the North American Free Trade Agreement (NAFTA) benefited the economies of Canada, Mexico, and the United States?, Uncategorized

14 responses to “Issue 17: Is NAFTA Good or Bad for Canada, the U.S., and Mexico?

  1. Sara

    NAFTA is a touchy subject for a lot of people. Many Americans feel like the agreement has sent more jobs to other countries like Mexico and that American workers are suffering. And while this may be true to some extent (as it’s been said many times in several of the issues we’ve looked at “there are always some losers in trade”) I support it and think that it has done much more good than harm. After all, the agreement operates at least in part on the idea of comparative advantage, so there will be some changes/loses/displacements.

    As Melle pointed out, there have been some serious improvements since NAFTA’s implementation in 1994: a decrease in U.S. unemployment, a rise in U.S. industrial production, job creation, and compensation, and increases of the GDP of both Canada and Mexico (p. 322-3). Even better, as we talked about in the free trade versus fair trade debate, NAFTA has helped resolve some very serious issues between Canada, Mexico, and the United States. So, in this way, it has functioned not only as a trade agreement but as a way to foster better relationships and end long-standing trade disputes.

    However, I can also understand some of the points that Polaski brings up as well. It does seem that Mexico in particular should have made some other changes before heading into the agreement. As she stated on page 327, “the government did not adopt sufficiently vigorous rural adjustment policies to help subsistence farmers adapt to the new trade conditions.” But really, this is more a mistake on the government’s part and not with NAFTA itself. I feel that this is also the issue when it comes to some concerns about the environment, income distribution, and etcetera: the government simply didn’t take the time to adequately prepare for the changes and plan for measures that would have to be taken.

    The Lou Dobbs video concerning trucking was very interesting. There might be some American trucker job losses, but wouldn’t the overall gains in the economy be for the best of everyone overall? I understand their concerns over security, but that’s something that we’re already dealing with. I don’t know what to make of the talk about the threat to America’s sovereignty, but that is something to consider I suppose.

  2. Sara

    Also, in the posting you said this: “We need stronger borders, we need to do a better job of protecting American jobs, and we also need to be sure that our trucking industry is not dismantled in favor of Mexican truck drivers.”

    My question is how are we supposed to protect American jobs without reverting to protectionism (which many believe hurts economies) or without violating the trade agreement? And, if the Mexican truck drivers did start taking business from the American ones, wouldn’t it be because they had a comparative advantage?

    • jzinn3

      Should the goal be developing employment rather than protecting jobs?

      Job protection is specific. Let’s keep steelworkers, or autoworkers, or textile workers, for instance, no matter what the price.

      What would an employment development policy look like? Would it involve education, workforce development, and R&D for cutting edge technology?

      • Kristen

        Professor Zinn,

        I think you’re on to something here. I’d definitely back an employment development approach! And I think it would involve all three of your suggestions. The concept is more difficult than just finding jobs for people, as Sylvain Giguere explains here (if you don’t mind his accent):

        It would involve a number of agencies and strategies to make it effective, but I believe it’s a more more sustainable route than simply keeping people employed in noncompetitive jobs.

      • econ2009

        This is a tough one for me.
        I’d think that both developing and protecting jobs are equally important.. but as to more or less? Not so sure.

        In terms of the employment dev policy, probably all of those things you’ve mentioned are important. A policy that’s upgradable might be suitable for the ever-changing/evolving environment/world in which we live…
        Don’t know more than that. Sorry.

    • jinc1019

      I am a very big supporter of free markets, as you know. So I can completely understand your points. However, in the case of Mexican truck drivers, these are non-Americans in America. Of course they have a comparitive advantage; they don’t have to be paid what other American workers are paid. That simply is not right. I am all for trade, but Mexican truckers operating in America is not fair trade at all because, as I said earlier, they do not have to operate with our wage laws even though they are technically working here in America.

  3. speltzer

    In support of free trade, it seems pretty logical that capitalist America would support NAFTA in breaking down trade barriers in order to allow free trade among the United States, Canada and México. Both authors at least agree than NAFTA has increased productivity in these three countries, which would be the natural economic consequence when facilitating more trade between countries due to comparative advantage. While I agree that there has to be some sort of protection of labor and the environment, losing some American jobs to México or Canada due to specialization is how a free market works. As Sara mentioned, there will always be “some losers.” Melle discusses an array of positive outcomes (job creation, business productivity, industrial production) due to NAFTA; however, I think it is important to highlight how it is difficult to measure and attribute the true successes and failures of this agreement. For instance, when Melle says that the unemployment rate decreased from 5.1% to 7.1% from 1994-2005 compared to 1982-1993, how much of the unemployment rate is truly affected by NAFTA? Free trade is obviously not the only factor that impacts the unemployment rate. This argument goes both ways though, and could be said the same for statistics used against NAFTA. I honestly thought that Polaski’s argument lacked statistics and/or empirical evidence to back up her claims. Maybe I just don’t know enough/ understand the issue enough but I don’t think NAFTA has significantly hurt or hindered our economy. I don’t think you can truly pinpoint a drastic shift in our standard of living or say that NAFTA is a threat to American sovereignty. I think perhaps I am somewhere in the middle of trying to balance free trade with some social/environmental regulation.

  4. Here I go again…I am split on another issue. Sometimes I feel like I have “2 faces!”

    As mentioned before, I am a big supporter of Capitalsim and I think free trade allows our market to respond with little intervention. As Sara mentioned, there have been many benefits from NAFTA. However, the benefits of NAFTA do have a cost.

    Now for my other face!!! I have a hard time supporting the loss of so many American jobs. Yes, there will always be losers in a free market system but is that fair to the displaced American worker. For those who have never personally lost their job, because of their employer relocating to a foreign
    country, it doesn’t seem like a big deal. It is easy to say “it is only the low paid workers” or “its just the truck drivers..who cares.” I knew a lot of people who were left on the street after VIA Systems (the old Bell Atlantic) shut down its operation in Richmond. Over 1000 jobs lost to Mexico in a blink of an eye. How about the closing of the Qimonda Plant in Henrico with 1500 people losing their job. Can we just say they were swallowed up by the free market but its best for the overall economy?

  5. jinc1019

    I also think it’s really important that we do not forget that certain American industries need to be protected as a matter of national security. One cannot defend the exporting of all American jobs just because there is a competitive advantage for other nations. It is a national security risk to import every car we drive, for instance.

    • jzinn3

      Now we are getting somewhere. There are a number of arguments used to restrict trade. National security is one. . .

      • econ2009

        How about protectionism/protection of workers?

        “Mexico was able to expand its GDP through high capital formation and protectionist policies. While Canada and the U.S. were busy reducing their tariffs, Mexico offered increasing protection to its manufacturing. According to the conventional view, this should have generated low or negative growth in the Mexican GDP. Instead it produced what some called economic miracle” (Batra 94).

        Batra, Ravi. The Myth of Free Trade: A Plan for America’s Economic Revival. Macmillan; 1993

  6. Kristen

    True…that’s one reason why we have farm subsidies too. We don’t want our food supply chain interrupted by a civil war somewhere! The rest of the world doesn’t always have that privilege, so I sympathize with Polaski’s depiction of the low-income Mexican. Here’s another economist’s take on the consequences of NAFTA: http://www.youtube.com/watch?v=HX8An-jSfFU

    To make a careful analysis here, I have to go back to the questions posed to us in the issue summary: “Should the focus be economic, political, or both? Should the evaluation concentrate on the benefits and costs to the United States, to Mexico, to Canada, or to all three countries?” (pg. 320)
    Probably the best way to calculate economic consequences is to have each country assess its own “cost/benefit” factors. From the evidence, it would appear that Mexico wasn’t ready for a trade agreement with two larger partners, and I agree with Brad DeLong that perhaps they should have focused on education and reducing graft before they entered one. However, as a free and sovereign nation, that is their call to make. Perhaps the long-term effects of NAFTA will include balancing out the inequalities represented here. I don’t think that America is at fault for using political savvy to economic advantage.

  7. Vivienne C. econ2009

    n Re: Issue 17.

    The Commanding Heights PBS videos which I watched last semester mentions about NAFTA briefly. The short clip of Perot, Bush Sr., and Clinton’s presidential heated debate on NAFTA is included in which Perot does say, “a giant sucking sound” (as mentioned on p. 320), while Bush Sr. criticizes Clinton for having “a pattern” of changing his position on NAFTA (sometimes for and sometimes against it).
    I know that most general economists agree that NAFTA does more good than bad for the NAFTA member countries. Melle does a good job of proving this and illustrating the data, between pages 322-323 using dotted bullet points. The numbers/data speak for themselves and we don’t even need to verify the data and/or facts because they make sense and what Melle says in our text is what he presented to the U.S. Senate in 2006. I mean, I take his word for it. (Moreover, I also think that NAFTA helps the U.S. on a more macro level, not really sure on a micro level… ).
    BTW, I like the following sentence by Melle. ” How much the NAFTA affected the changing trends in goods and services trade and investment (I suppose both on micro and macro levels) cannot be measured PRECISELY (Bonello 322). I agree that NOT EVERYTHING can be quantified or measured accurately or so precisely that there absolutely isn’t a room for margin of error. Overall, I agree with Melle. (I wrote “good” next to several of his remarks/statements, put check marks/stars, etc.) I, especially, agree with his 2nd to last sentence, “The US and its NAFTA partners have not only become better customers for e/o but better neighbors…” (325).
    Ok, now on to the fun part… Polaski has a very good point and if you are a member of the Labor Union or the like (which I am not but I can ABSOLUTELY sympathize w/their arguments on job security & protection, etc. ) or a member of the AFL-CIO then, yeah, you’d be strongly against NAFTA. You can visit this site http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/int_thealee.html
    to learn more about Thea Lee who appears in the the Commanding Hgts video. She is outspoken about the impact of NAFTA on workers and small businesses. I take her point. Protecting American jobs on American soil is important but I also think that creating jobs is important, too. Regardless of your job title, you always have to innovate and improve in the ever changing and competitive job market. If you lose your job then do or think of something creative. Steve Jobs was fired from Apple but that didn’t affect him professionally. Instead, he created Pixar (VERY creative, both figuratively and literally) and became MORe productive and Apple eventually hired him back. In his case, Steve jobs getting fired was a good thing for him personally and for the world (esp. children who enjoy movies made/produced by Pixar! My nephew enjoyed Bolt! when it came out last year. Pixar is the 2nd best thing that ever happened, next to Disney, in the name of entertainment.) I heard this story in his Stanford Commencement speech. Ok, I know he is not a union worker (more of an outlier, like Bill Gates) but my point is that you have to continue to be creative and don’t let a pink slip affect you mentally and professionally. Turn it into a once in a life time opportunity and give it a 180 degree spin, so to speak. Those union workers, I understand their situation but instead of fighting for their insecure jobs, they could find other jobs in a different or more lucrative industry or business sector and be (perhaps) more productive and rewarded. When I was watching the Commanding Heights: The battle for World Economy videos, I thought this then and I still think the same. I didn’t like it and it was awful to see those a protestor smashing a pie of cream on the face of the head of WTO officials. What is that? That is so childish (not childlike), immature, and absurd. Sorry, I just have to vent and let it out and move on. (So was that Iranian guy/journalist who threw a shoe at Bush). Those protestors are entitled to express their point of view/opinions and fully protected by the First Amendment under the U.S. Constitution
    but, please, not like that. It doesn’t get anything done but humiliate an official in public, as well as the person/protestor who engages in such an awful and stupid method of protest. That kind of idiotic or inane
    behavior actually humiliates them more than their target. If they want to fight because they have a good cause or reason then you have to take a far better more intellectual approach than that. Sorry, that’s my two cents, right there, on that subject which is one of my pet peeves. Writing a persuasive or effective letter to the head of the WTO would’ve been more effective and persuasive, if you ask for my personal op.
    Sorry, can’t get too carried away w/ my personal commentary here! I want to stick to the subject of NAFTA.

    I’m sure we all agree, as American citizens who work and live on American soil, that American jobs should be protected or reserved for the American tax-paying citizens and legal hard-working and law abiding aliens/immigrants. There is no dispute among us about that. We know it’s all about JOBS, JOBS, and JOBS! I hate to see many jobs being outsourced to countries in India, China, etc. Friedman touches on this in his books, “Hot, Flat, and Crowded” and “The world is flat.” I enjoyed his illustrations or method of categorization; Globalization 1.0, 2.0, and 3.0. I also dislike talking to phone operators w/ a heavy Indian accent. (It’s so difficult for me to understand them or communicate w/them. My cell phone carrier is Sprint and I had to talk to quite a few of Indian phone operators… this is my other pet peeve :)
    I understand Polaski’s argument on wages or the employment consequences of NAFTA.

    (Sorry, this post could be a very long one but do finish reading. Thanks!)
    I re-read the chapter on International Trade, Comparative Adv, and Protectionism last night in a macroecon book I still have. I wish I can talk about each of the key points but I won’t regurgitate. BTW, I’m learning a lot more on this topic of NAFTA from this course than I did (or I thought I did) when I took macro which is great! To share briefly just the final take home msg… there are two main sides to the argument on NAFTA. The general economic consensus is the following. One side is the theory of comparative advantage (“all countries benefit from specialization and trade, free international trade raises real incomes and improves the standard of living” (Case 391) If I may add to this wonderful statement, I’d say that the QUALITY of living also improves). The OTHER side of the argument focuses on “the protectionists, who point the loss of jobs and argue for the protection of workers from foreign competition. Although foreign competition can cause job loss in specific sectors, it is unlikely to cause net job loss in an economy, and workers will over time be absorbed into expanding sectors” (392). I like or agree this part of the page, “Foreign trade and full employment can be pursued simultaneously. Although economists DISagree about many things, the vast MAJORITY of them FAVOR free trade.”

    This particular macroecon text book was good but I thought it wasn’t good ENOUGH on the topic. So I briefly stopped by a local public library last night on my way home and checked out 3 books.
    By the way, I could ONLY find books (at that particular lib) that argue AGAINST NAFTA. One of the books, I noticed this morning, is mentioned at the bottom of p. 331 of our text, “The Selling of ‘free trade’: NAFTA, Washington, and the Subversion of American Democracy by John MacArthur. I like his last name, reminds me of Gen. MacArthur who played a MAJOR and essential role in the Korean War.
    I’m normally not this observant but the fact that I could books which argue against NAFTA (and none FOR it) tells me that a lot of writers and people (the mkt share of those writers) think NAFTA or Free Trade is more of a myth than anything else…or that it doesn’t do what it’s specifically designed to do/ there are more opponents than proponents, tho I couldn’t conclusively state that this really the true… or that the number of books I was able to find at one location truly reflects the real situation. So, I prob shouldn’t make a general hasty generalization. It’s too bad and unfortunate that we don’t have more than one day to discuss on any given topic, BTW. Ther e are so many good points we can address as a class but can’t because of the time constraints. BTW, I thought it was necessary to consult w/ other books
    on NAFTA (either for or against) because the macroecon textbooks are really just GENERAL written by general economist/authors/econ professors. Just out of curiosity, I wanted to
    get a fresh and in-depth perspective of someone else who is a specialist or an expert in the field or NAFTA. If you have cancer, you NEED to go see a specialist not a general practice/medicine physician. Right? Anyhow, I found Dr. Ravi Batra’s book “The Myth of Free Trade” helpful, in particular. The book says that he also wrote a book called “The Great Depression of 1990″ which sounds like a good read. It says it was on the NY Times bestseller list for 52 weeks.
    He talks in depth about NAFTA starting grom p. 189 and on. Check it out, I like this part: “As if the policy of monopolistic free trade had not done enough damage, the U.S. compounded its blunders by reaching a free trade agreement w/ Mexico on Aug. 12, 1992. Commonly known as the North American Free Trade Agreement (NAFTA), the accord also includes Canada but this does not make much difference because a similar treaty w/ Canada already exists” (Batra 189). I won’t write along synopsis of this chapter but I will share the following from the inside jacket of the book (is that called an inscription? correct/teach me if I’m wrong which I prob am…)
    “Although mainstream economists- and highly paid corporate execs -trumpet “free trade” as America’s best possible source of prosperity, Dr. Batra insists the policy may have damaged our economy as severely as the Great Depression. Almost every economic problem we face –the outrageous federal deficit; rising unemployment; the shrinking middle class; the “merger mania” that slashed jobs, killed competitiveness, and increased corporate debt; and environmental degradation– can be linked to the free trade policy that the U.S. has been following over the last 20 yrs. Batra sets forth a compelling ploan for ‘competitive protectionism’ and prescribes a radical but well-reasoned five year plan for economic revival:

    - Average tariffs on imports should be raised from 5% to 40%.
    -Ban Mergers among giant firms .
    -IBM, GM, and other Fortune 500 firms should be split into smaller, more competitive units, along the lines of the AT&T divestiture in 1982; no single company should be allowed more than 10% of the domestic market
    -Encourage foreign investment in the US in new ventures; don’t permit investors to simply buy existing concerns.
    -The U.S. gov’t should take an active role in subsidizing private R&D spending w/ money from increased tariff revenue and from drastically reduced defense spending.
    Batra makes a clear and convincing argument that “competitive protectionism would inc. tax revenues, resurrect the manufacturing base, raise real earnings for 80% of the work force, trim inequality, reduce the rate of poverty, enhance the growth of productivity, cripple the abuse of monopoly power by big business, revitalize the economy, and, above all, restore America’s economic leadership in the world.”

    Sorry, it’s really TMI but I thought it was well-written so I thought I’d share it since it’s ONE “specialist’s” argument and suggestions against free trade. I know we’re on the specific subj. of NAFTA. I’ll post another post later.

    Alan Greenspan mentions about NAFTA and the Mexican financial crisis in “The Age of Turbulence” but I won’t share it right now but will later. A short one :)

    Thanks for reading, BTW, as always… it’s one of the last few of my loooong posts :D Hope you don’t miss me too much after the class, which most ppl tend to do :(

  8. Vivienne C. econ2009

    Sorry, there are a few typos and grammatical errors in my prev. post.
    I should really proof-READ before I submit my comments and not AFTER I submit. Stupid me.

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