The Truth about NAFTA: Lessons for Trade Negotiations

[Luis Gonzalez]

The Truth about NAFTA: Lessons for Trade Negotiations
By Bryan Riley and Donghun Yu
For The Heritage Foundation

In 1993, critics of the proposed North American Free Trade Agreement (NAFTA) made dire predictions about what would happen if Congress approved it. However, wiser heads prevailed, and NAFTA took effect on January 1, 1994.

Today, the same misguided arguments are being used in connection with new free trade agreements such as the proposed Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). A look at some of the critics’ claims reveals how things really turned out.

Claim: “You’re going to hear a giant sucking sound of jobs being pulled out of this country.”

Claim: NAFTA has reduced U.S. manufacturing.

Fact: U.S. manufacturing output has actually been increasing.

The government’s Index of Real Manufacturing Output increased from 84.3 in the first quarter of 1994 to 119.5 in the first quarter of 2014. Manufacturing workers also earn much more now than they did when NAFTA was passed. Real compensation per hour in the manufacturing sector is up over 20 percent since 1994.

There are fewer U.S. manufacturing jobs now than in 1994 because manufacturing workers are much more productive now than they have ever been. The average manufacturing worker produces nearly twice as much per hour today as in 1994.[4] As Heritage Foundation labor economist James Sherk has observed:

Fact: Since NAFTA was enacted, the United States has added nearly 25 million net new jobs.

Advances in computers and robotics enable machines to perform many rote tasks that once required human labor. Manufacturers have replaced human labor with these machines in their production processes.... Computers and robots now do tasks that once required workers on an assembly line.... This has changed the types of workers that manufacturers need. Manufacturers need fewer unskilled workers to perform rote tasks, but more highly skilled workers to operate the machines that automated those tasks.... Manufacturing job opportunities have increased for skilled workers even as overall manufacturing employment has fallen.

Claim: “Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases.”[6]

Fact: Real wages in Mexico are higher than ever.

Since 1995, real wages are up 9.1 percent. Since the bottom of Mexico’s peso crisis in 1997, real wages are up 23.8 percent.



Claim: “NAFTA has contributed to downward pressure on U.S. wages.”[7]

Fact: Real wages for U.S. workers are 12.6 percent higher now than when NAFTA took effect.



Claim: “NAFTA Devastates Mexico’s Rural Sector, Increases Poverty.”[8]

Fact: NAFTA has reduced poverty in Mexico.

In 1994, 14 percent of people in Mexico lived on less than $2 per day. Since NAFTA passed, the percentage of people in Mexico living on less than $2 per day has dropped to less than 5 percent.





Claim: “The environmental provisions of NAFTA have failed to result in heightened enforcement, let alone a significant rise in standards.”[9]

Fact: NAFTA has improved Mexico’s environment.



Since Yale University’s Environmental Performance Index was first released in 2002, Mexico’s rating has improved from 50.98 to 55.03.[10] Child mortality has declined, the air and water are cleaner, and agricultural subsidies have been reduced.

In measuring environmental progress, it makes sense to look at how clean the environment is, not how many pages of environmental regulations are on the books or how many people have been added to government regulatory agencies. In general, countries with low trade barriers actually have cleaner environments than do those that restrict trade.

An Example to Follow

NAFTA’s legacy includes more jobs, higher wages, cleaner environments, more manufacturing output, less poverty, and (perhaps most significantly) increased economic freedom. Done right, TPP and TTIP agreements will generate similar benefits.

—Bryan Riley is Jay Van Andel Senior Analyst in Trade Policy in the Center for Trade and Economics, a department of the Institute for Economic Freedom and Opportunity, and Donghun Yu is a Visiting Fellow, at The Heritage Foundation.

http://www.heritage.org/research/reports/2014/06/the-truth-about-nafta-lessons-for-trade-negotiations

[Luis Gonzalez]

The North American Free Trade Agreement: Ronald Reagan's Vision Realized
By Michael G. Wilson
The Heritage Foundation

The approval by the Congress of the North American Free Trade Agreement (NAFTA) is a victory of engagement and competition over withdrawal and complacency. The trade pact, which will eliminate tariffs on goods and services between the United States, Canada, and Mexico over a fifteen-year time span, will create the world's largest market: some 360 million people, with an economic output of more than $6 trillion a year. The NAFTA thus guarantees that American workers will remain the most competitive in the world and that American consumers will continue to have access to the world's finest goods and services.

The North American free trade area that the agreement creates will produce 25 percent more goods and services than the European Community, giving North America enough economic muscle to challenge the emerging unified market in Europe and an East Asia market dominated by Japan. The NAFTA also will offer Americans cheaper goods, and increase U.S. exports by making them more affordable for the rest of the world. Moreover, it will create an estimated 200,000 new jobs for Americans, reduce illegal immigration from Mexico, help tackle drug trafficking, strengthen Mexican democracy and human rights, and serve as a model for the rest of the world.

President Clinton has correctly described the agreement as "just a first step," stressing that he will reach out to other Latin American countries in an effort to spread free trade throughout the hemisphere. In so doing, he will move even closer to the conservative vision of a hemisphere-wide free trade area.

Long-Standing Support for Free Trade with Mexico. Ronald Reagan first proposed a free trade agreement between the U.S. and Mexico in his 1980 presidential campaign. Since that time, The Heritage Foundation is proud of the role it has played in articulating President Reagan's vision of free trade in Latin America and around the world. Since the mid-1980s, Heritage analysts have been stressing that a free trade agreement with Mexico not only will stimulate economic growth in the U.S., but will make Mexico a more stable and prosperous country. Heritage has published over three dozen studies stressing the benefits of free trade in North America.

The Foundation also has highlighted the Mexican success story. Under the leadership of Mexican President Carlos Salinas de Gortari, Mexico has moved further and faster than practically any other country in the world in promoting free market reforms and free trade. The approval of the NAFTA by the Congress is a recognition of these historic advances and will help ensure that the momentum in favor of economic and political liberty throughout the Americas is maintained.

In June 1986, then-Heritage analyst Edward L. Hudgins wrote "A U.S. Strategy to Solve Mexico's Debt Crisis." In that Backgrounder, Hudgins urged the Reagan Administration to "explore further special free trade and investment arrangements" with Mexico. Said Hudgins: "The possibility of a complete free trade and investment zone [between the U.S. and Mexico] should be explored. Ultimately, a complete Free Trade Area between the U.S. and Mexico should be sought, similar to the U.S.-Canada pact [then] being negotiated."

Four years later, Heritage analyst Michael Wilson argued in an Executive Memorandum entitled "Bush and Salinas Should Launch Free Trade Talks Between the U.S. and Mexico": "What were once distant neighbors now appear to be developing into economic and geopolitical partners. George Bush should strengthen this cooperative relationship not only by supporting Salinas's economic reforms, but by moving quickly to negotiate a free trade agreement with Mexico."

The Politics of Fear vs. the Politics of Hope. The approval of the NAFTA not only represents a victory for the U.S. economy and the American people, it also deals a blow to organized labor and other protectionist forces. The agreement reaffirms the American commitment to competition and free enterprise that other nations emulate.

By supporting the NAFTA, the Clinton Administration and a majority of Congress wisely rejected calls for a return to the same protectionist policies, demonstrated by the Smoot-Hawley tariff laws, which helped create the Great Depression. Many of these protectionist calls were from labor unions concerned that the NAFTA would cost U.S. jobs in older industries. Despite such concerns, though, labor will see that, as consumers in a growing economy, they too are better off when nations are free to trade with one another and workers are exposed to the rigors of international competition.

Looking to the Future. President Clinton should ride the free trade momentum that conservatives have given him and reaffirm his support for free trade agreements with other Latin American countries, namely Chile, Argentina, and Venezuela. He has wisely voiced his support for George Bush's vision of an Enterprise for the Americas, which seeks to create a free trade area stretching from Alaska to Antarctica. Latin America is the fastest growing market for the U.S. and the only region where America enjoys a trade surplus. Every Latin American leader, from Carlos Menem in Argentina to Patricio Aylwin in Chile, has voiced support for free trade with the U.S. The Clinton Administration should begin negotiating free trade agreements with them.

President Clinton should also extend the offer of free trade to America's partners in Europe and Asia. A successful conclusion of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in December would be a welcome first step in that direction, as would the President's disavowal of "managed trade" ideas in the wake of the meeting of Asian-Pacific Economic Cooperation (APEC) leaders last week in Seattle.

The NAFTA win is a great victory for free trade conservatives. It was they who first championed the notion of free trade with Mexico. And it is they who will carry the banner of free trade in the future -- a banner under which even Bill Clinton now marches.

[Luis Gonzalez]

Trump is full of s#it on NAFTA.