by Ellen Frank
Dollars and Sense magazine,
Since the North American Free Trade Agreement
(NAFTA) between the United States, Mexico, and Canada went into
effect, trade within North America has increased dramatically.
Exports from the United States to Mexico have risen 150% and exports
to Canada are up 66%. This much is beyond dispute.
NAFTA's effects on employment, on the
other hand, are hotly debated. Clinton administration officials
estimated in the late 1990s that expanded trade in North America
had created over 300,000 new U.S. jobs. Economic Policy Institute
(EPI) economists Robert Scott and Jesse Rothstein contend, however,
that such claims amount to "trying to balance a checkbook
by counting the deposits and not the withdrawals."
This is because NAFTA and other trade
agreements have also increased U.S. imports from Canada and Mexico-and
by quite a lot more than exports. Since 1993, America's trade
deficit with its North American trading partners (exports minus
imports) has ballooned from $16 billion to $82 billion annually.
As Scott points out, "increases in U.S. exports create jobs
in this country, but increases in imports destroy jobs because
the imports displace goods that otherwise would have been made
in the U.S. by domestic workers."
Employment in virtually all U.S. manufacturing
industries has declined since NAFTA went into effect. Counting
jobs that actually left the United States plus those that would
have been created if not for rising imports, EPI estimates that
NAFTA caused a net loss of 440,000 U.S. jobs. In fact, during
the 1990s, the overall U.S. trade deficit quadrupled, resulting
in a net loss of 3 million jobs, according to EPI president Jeff
Of course, in a large and complex economy,
trade is only one of many factors that affect job creation, and
its influence is difficult to isolate. As trade expanded during
the 1990s, for example, the United States also experienced an
investment boom that created jobs faster than rising imports destroyed
them; overall, the number of jobs in the United States has risen
by 28 million since 1994.
Any free-trade booster worth her lobbying
fees would argue that the boom itself resulted from liberalized
trade. Lower trade and investment barriers, the story goes, unleash
entrepreneurial talents, spurring innovation and productivity
gains. Old jobs lost are offset by new jobs gained, and falling
wages by cheaper prices on imported goods. Moreover, free-traders
contend, any reckoning of NAFTA's impact should tote up new jobs
and factories in Mexico against shuttered plants in the United
So what about NAFTA's effect on Mexico?
In a study for the Interhemispheric Resource Center, analysts
Timothy Wise and Kevin Gallagher conclude that NAFTA has given
Mexico "trade without development." Since NAFTA weakened
to U.S. investment in Mexico, foreign
investment into the country tripled and exports grew rapidly.
But the development promised by free-trade advocates never materialized.
Mexican employment did grow during the early years of NAFTA, but
in recent years, it has declined as mobile manufacturers have
sought even cheaper labor in Asia. Mexican manufacturing wages
fell 21% during the 1990s, and poverty worsened.
Wise's and Gallagher's findings echo the
conclusions of Harvard development specialist Dani Rodrik. Poor
countries that turn to trade as a cure for poverty find themselves
ensnared in the "mercantilist fallacy": they can't all
export their way to riches, since one country's exports are another's
imports. Someone has to buy all this stuff. The United States,
with its annual trade deficit approaching $soo billion, is the
world's buyer and its manufacturing industries suffer as a result.
But poor countries don't fare much better. They face increasing
competition from low-wage manufacturers in other poor countries,
and world markets are now saturated with cheap apparel and electronics,
driving prices and wages down.
The result is one thing that almost everybody
who studies trade now agrees upon. Whatever else they have wrought-
more jobs, fewer jobs, more or less poverty-globalized trade and
production coincide with greater inequality both within and between
countries. The reasons for this are complex-globalization weakens
unions, strengthens multinationals, and increases competition
and insecurity all around-but the data are clear. Markets do not
distribute wealth equitably.
Ellen Frank teaches economics at Emmanuel
College and is a member of the Dollars & Sense collective.
NAFTA / FTAA page