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Blaming NAFTA Not Based On Facts

Blaming NAFTA Not Based On Facts

Excerpt from: Fosters | By Jonathan Menes | June 1 2015

A letter published May 24 argues that NAFTA must be renegotiated because of the harm it has caused. To this end he cites some figures apparently taken from the “economyincrisis.org” an anti-free trade website. NAFTA is a complicated agreement and separating out the effects of NAFTA from other economic trends involves lots of economic analysis and data so I will only make a few points.

3D Rendering of North American Free Trade Agreement NAFTA MemberFirst, would renegotiation be good for the U.S.? What the writer doesn’t seem to understand is that the Mexican market was far more restricted compared to the U.S. What NAFTA did was to level the playing field for U.S. companies. If we went back to 1993 before NAFTA went into effect, U.S. exporters had to pay an average tariff of around 13 percent on manufactured goods sent to Mexico. Mexican manufactured exports to the U.S., on the other hand, faced an average tariff of only 4 percent. I fail to see the benefit of that.

To cite one other example: Prior to NAFTA, Mexico had a set of complex rules to try and promote a domestic auto industry. In order for U.S. auto companies to export autos to Mexico they were required to establish auto manufacturing facilities in Mexico, to source locally 36 percent of their value and to export nearly twice as many cars as they imported into Mexico. In addition, Mexico applied a 12 percent tariff to auto imports. A country was and is free to export cars to the U.S. and pay at most only a duty of 2.5 percent. Why would we want to reinstate such rules?
{Photo source: Depositphotos.com/ronniechua}

Second, the writer cites what he claims are examples of negative effects from NAFTA without showing any connection to NAFTA. He claims that 3,000 family farms were lost. If family farms were lost, it wasn’t the result of NAFTA. Under NAFTA, Mexico had to open its market to American grain exports, especially corn.

(The letter also) claims that three million U.S. manufacturing jobs, equal to about 25 percent of current manufacturing employment, were lost as a result of NAFTA. Yet, imports of manufacturers from Mexico equal only 4 percent of domestic manufacturers’ shipments. The reality is that the U.S. has been steadily losing manufacturing jobs, but not because manufacturing is declining. Quite the contrary, manufacturing output is up 43 percent since NAFTA. (Source: BLS.GOV)

The problem, if you can call it that, is that American industry has been extremely successful in raising productivity. Between 1993 and 2013, labor productivity in manufacturing rose by 92 percent (BLS.GOV.) Without that productivity gain employment might have risen from 17 million to perhaps 24 million instead of falling to 12 million. Don’t blame NAFTA, blame American technology and efficiency.

To quote the Congressional Budget Office study of NAFTA, “NAFTA has increased both U.S. exports to and imports from Mexico by a growing amount each year. Those increases are small, and consequently, their effects on employment are also small.”

The reality is that U.S. trade with Mexico represents a very small fraction of our national GDP. The U.S. has economic problems for sure, but blaming NAFTA simply doesn’t compute.