Economic Law Won’t Hold With Trade Pact

George Perry’s candor in admitting that there will be “losers” in the North American Free Trade Agreement was refreshing (Oct. 25). Unfortunately, he underestimates the damage NAFTA will do. Perry’s discourse on the “law” of comparative advantage gives a clue to why.

Ricardo’s theory of comparative advantage is based on trading partners each doing what they do best, trading their products to each other and enjoying mutual gains in efficiency from specializing. The model assumes that production decisions are being made based on efficiency. It also assumes the absence of market control skewing the equilibrating effects of “free trade.”

In fact, many of the jobs the United States will lose to Mexico will be U.S. firms going abroad not to take advantage of higher productivity in Mexico, but lower costs. Environmental regulations are not enforced.

Wages at a GM plant in the Tijuana area run about $2 an hour. U.S. firms used to pay Mexicans to assemble components we produced up here. Now auto makers are building state-of-the-art plants south of the border. That is not good news for U.S. workers or communities like Van Nuys that recently lost a GM plant.

So at least the Mexicans are better off, right? Maybe immigration will slow down. Well, maybe not.

Average wages have declined 40% in Mexico since 1982, when integration began. And, as a result of an increase in cheap food imports to Mexico, many more farm families will likely leave the land, swell the cities and head north hoping for a better life.

NAFTA is not inevitable. Comparative advantage is not a law. Trade policy should encourage a raising of environmental and social standards in Mexico to level the playing field. Retaining and creating good U.S. jobs should be an explicit goal.

Perry warns that the cost of “protecting” a U.S. job is greater than the job’s annual salary. Well, so is the cost of losing that job.

Factor in the lost tax revenue to government, the payout of benefits to the unemployed and indigent, add up the costs of increased violence and despair in economically dispossessed communities--and the calculation will look vastly different.

ALISON TOWLE

Los Angeles