The surprising thing about the opposition to the North American Free Trade Agreement is that it’s so blatantly false--the Big Lie technique is being used, as former President Carter put it last week, “by a demagogue who is preying on the fears and the uncertainties of the American public.”
For his own political reasons, Ross Perot has been leading the opposition, with the help of Pat Choate, a Washington economist, and the backing of Roger Milliken, a South Carolina textile manufacturer and longtime supporter of political causes.
Perot’s claims are that jobs will go to Mexico once U.S. tariff walls come down, that automobile production will move there, that whole sectors of U.S. manufacturing will abandon the United States at a loss of 5.9 million jobs.
That’s bizarre nonsense. The fact is, the tariff barriers coming down will be those of Mexico, spurring an increased flow of U.S goods southward. Note well, goods will move, not jobs, and most particularly U.S. manufactured goods, from automobiles and parts, to cutting tools to washing machines and refrigerators.
What NAFTA will do is open up the Mexican economy, which now has tariff barriers of 10% to 20% against U.S. products.
The U.S. economy by contrast is already open, with tariffs of 4% and less against goods from Mexico or any other country. Yet even with today’s tariff disadvantage, U.S. exports to Mexico last year totaled $40 billion, $5 billion more than the $35-billion worth--including oil--that Mexico sent northward. NAFTA will expand that surplus, but more important it will give a preferred position to U.S. and Canadian suppliers against competitors from Asia and Europe who are also eyeing the emerging Mexican market of 80 million people.
Those are facts, but unhappily the debate on NAFTA has turned on emotion. Americans, fearful about their economic future in a time of recession and technological change, believe contradictions--that Mexico will take both jobs and exports; that Mexico will be a permanent U.S. dependency, even though it is not a dependency now.
NAFTA opponents in U.S. labor unions and the Sierra Club fan such fears, although most environmental organizations now support the treaty. The disturbing fact is that NAFTA’s vocal opposition has rendered so many politicians fearful and silent.
That could change. President Clinton and three former Presidents spoke out for NAFTA last week. And more than 40 state governors have supported NAFTA all along, including the governors of Michigan and South Carolina, who foresee rising car and textile exports, and Gov. Wilson who knows NAFTA will help California. Wilson stands in contrast to the state’s two senators and many of its representatives, who seem ignorant of the treaty’s benefits to their constituents.
U.S. textile makers, other than Milliken & Co., support NAFTA because they know their industry has become highly efficient, with modern, computer-driven plants. Theoretical wage differentials--$8 an hour in the U.S. industry compared to $2 in Mexico--are more than offset by the productivity of U.S. labor and capital and the enormous drawbacks of doing business in underdeveloped Mexico--where electricity is four times the U.S. cost. Textile products will move to Mexico, not textile jobs.
Apparel making, the sew-and-stitch, minimum-wage end of the clothing industry, is said to be under threat of moving to Mexico. Yet there is no sign of such movement. On the contrary, Los Angeles apparel makers report rising exports to Mexico as the economy to the south improves.
California environmental laws have forced Los Angeles furniture manufacturing to move to Tijuana. But then Mexico’s need for environmental improvement is bringing new business to scores of Southland environmental firms, such as HartCrowser of Long Beach and SRS Systems of Irvine.
In machine tools, a critical manufacturing industry, the Mexican market grew to $513 million last year. And U.S. machine tool exporters--despite a 12.5% tariff--got $250 million of that business in competition with Asian and European suppliers. If NAFTA is approved, those machine toolers will be preferred providers to the Mexican market. If NAFTA fails, other countries--Japan, Germany, Spain in particular--will come in with government-backed financing and get the business.
In household appliances, the U.S. International Trade Commission said in January that some production would move to Mexico as living standards rose. But Whirlpool Corp., of Benton Harbor, Mich., says that’s not how global industry works. Whirlpool, as it does in countries everywhere, has a joint venture in Mexico supplying small machines to the Mexican market. But more than 60% of the material in those machines comes from U.S. plants. In addition, exports to Mexico of large washers and dryers are increasing, despite a 20% tariff. After NAFTA, Whirlpool expects rising business on both sides of the border.
Yes, but if NAFTA is so good for the United States, what’s in it for Mexico? Economic development. Mexico has been taking chances to develop its economy. To modernize agriculture, it has lowered tariffs on animal feed and agrichemicals. U.S. exports have surged.
The truth is, Mexico will develop its economy and continue reforming its political system whether NAFTA passes or not. We should keep in mind that no nation has the potential to affect the United States--for good or ill--quite as much as Mexico.
But if the U.S. Congress refuses to ratify the treaty, Mexico will look elsewhere for business partners, as will Argentina, Chile and others. The historic transformation of Latin America will go on, but the United States will have less influence over it.
Given all those facts, why has opposition to NAFTA grown so strong? The answer is power. Perot sees a chance to exert power, by showing he can arouse voters to strike fear into their elected representatives, to threaten a President’s program.
“Nature abhors a vacuum,” said the philosopher Baruch Spinoza. President Clinton holds the world’s most powerful office. If he asserts his policies and fights for them, he will be using the power he was elected to wield. But if he is not forceful, others will set the agenda for his Administration, and U.S. society will drift in argument and anxiety, as today.
Economically, the NAFTA debate may be nonsense, but politically it is serious.
NAFTA’s Impact on U.S. Agribusiness
Projections of how the North American Free Trade Agreement will affect key sectors of American agriculture vary, with proponents of the treaty predicted broad gains and critics warning of wholesale losses. What follows are highlights of the Agriculture Department’s upbeat assessment. Bear in mind that the Clinton Administration wants the treaty approved. Product: Beef Net Gain (Loss) in U.S. Exports*: $200 million-$400 million Analysis: More young cattle will be shipped to the U.S. for feeding; more slaughtered cattle will be shipped to Mexico Effect on U.S. Prices: Negligible rise
Product: Dairy Net Gain (Loss) in U.S. Exports*: $62 million-$69 million Analysis: Increase in exports of nonfat dry milk; 15% increase in exports of other dairy products; few Mexican exports likely Effect on U.S. Prices: No projection
Product: Coarse grains Net Gain (Loss) in U.S. Exports*: $400 million-$500 million Analysis: Steady increases in U.S. corn and sorghum exports; 20% increase in barley, rye and oat exports Effect on U.S. Prices: No projection
Product: Oilseeds Net Gain (Loss) in U.S. Exports*: $400 million-$500 million Analysis: 20% increase in U.S. soybean exports; modest increases in U.S. exports of soymeal, cottonseed and other oil seeds Effect on U.S. Prices: Negligible rise
Product: Wheat Net Gain (Loss) in U.S. Exports*: No projection Analysis: 20% increase in U.S. exports, to about 1.5 million metric tons Effect on U.S. Prices: Negligible rise
Product: Cotton Net Gain (Loss) in U.S. Exports*: No projection Analysis: Some increase in U.S. exports of raw cotton and textiles; Mexico likely to substantially increase exports of textiles and apparel Effect on U.S. Prices: No projection
Product: Vegetables & Melons Net Gain (Loss) in U.S. Exports*: No projection Analysis: Small increase in U.S. exports of sweet corn, green beans, tomato paste, frozen asparagus; increases in Mexican exports of cucumbers, bell peppers, broccoli, tomatoes, asparagus, melons. Effect on U.S. Prices: Will vary
Product: Non-citrus fruit Net Gain (Loss) in U.S. Exports*: Will vary Analysis: U.S. exports of fresh peaches, apples and pears to Mexico will double; Mexican exports of strawberries could rise; U.S. strawberry exports to Canada will rise up to 13% Effect on U.S. Prices: Peach prices will rise 6%; apple, pear and strawberry prices will rise slightly
Product: Citrus fruit Net Gain (Loss) in U.S. Exports*: No projection Analysis: U.S. exports of fresh oranges to Mexico will increase, but U.S. will remain a net importer; slight increase in U.S. imports of frozen orange juice concentrate Effect on U.S. Prices: No projection for fresh oranges; slight drop in prices for frozen concentrate
Overall: Increased U.S. exports of $2 billion to $2.5 billion; increased Mexican exports to the U.S. of $500 million to $600 million.
* Annually as of 2008, when most tariffs would be eliminated
Source: USDA Office of Economics