IMPACT OF NAFTA VICTORY : Winners, Losers Assess Future : How Accord Will Affect Americans
As NAFTA won approval Wednesday night from the House of Representatives--and since approval by the Senate is a virtual certainty--U.S. consumers, investors, companies and their employees are asking how they will be affected by the trade pact, which takes effect Jan. 1.
In fact, the economic impact will be nowhere near as dramatic as the political rhetoric waged by backers and opponents of the North American Free Trade Agreement. Nonetheless, NAFTA will definitely affect the American economy.
*
Q. How will American consumers feel the impact of NAFTA?
A. For most, the impact will be small. Ending tariffs on Mexican exports will give U.S. consumers a few more choices of certain Mexican products at lower prices, such as household glassware, fruits and vegetables, canned goods and straw brooms.
Also, U.S. companies that increase manufacturing in Mexico to save labor costs will probably pass some of those savings on to shoppers, thus helping to limit overall U.S. consumer prices.
The downside: Vacationing on the Yucatan could get pricier if, as some analysts expect, the Mexican peso strengthens relative to the dollar as a result of NAFTA.
*
Q. Are there ways for investors to exploit NAFTA’s passage?
A. Yes, but they will require the same homework as any investment. Money managers say there’s good cause to buy stocks of certain U.S. auto makers, banks, telecommunications firms and trucking companies--if those firms plan to invade Mexico or already have Mexican connections that will benefit from NAFTA.
Some Mexican stocks--and mutual funds that invest in them--will also be considered good buys, including shares of certain Mexican construction companies that stand to gain from the arrival of more U.S. plants.
But NAFTA should not get all the credit. Analysts have touted Mexican-related investments whether NAFTA passed or not, because of Mexico’s improving economy.
*
Q. Will there be benefits for U.S. firms already in Mexico or exporting to Mexico?
A. Yes. Those in Mexico will gain because NAFTA will erase tariffs on the goods they ship back to the U.S. and Canadian markets.
Conversely, U.S. exporters--such as auto makers and farm equipment manufacturers--will benefit as they boost shipments south. That will also aid their suppliers of wheels, plastics, electronic components and the like.
Also, the overall boost in trade and U.S. investments in Mexico triggered by NAFTA should lift the buying power of Mexican workers, creating more demand for goods imported from the United States and Canada.
*
Q. So that means NAFTA will launch a rush by U.S. companies to build plants in Mexico?
A. No. Despite the benefits mentioned above, deciding where to build a plant involves much more than simply exploiting Mexico’s lower labor rates.
Other variables include where the plant’s goods will be shipped, how much those shipping charges will be, whether the workers are as productive as their U.S. counterparts, communication and utility costs in Mexico and so on. In many cases, Mexico lags far behind.
Indeed, a Virginia furniture maker recently said it would move its manufacturing plant to Mexico only if NAFTA failed, because current tariffs make it too costly to export goods to Mexico. Now, with NAFTA poised to eliminate the tariffs, the company said it would stay in Virginia and keep shipping across the border.
But some companies are likely to add up those variables--led by the low wages--and shift production to Mexico. Candidates are U.S. firms already reliant on low-wage workers, such as those in garment manufacturing, electronics assembly and food processing.
*
Q. Are there other benefits for U.S. companies?
A. Beyond manufacturers, many other American firms will gain because NAFTA will give them wider access to Mexico. Those include retailers, banks, brokerages, telecommunications firms and fast-food franchises.
Examples: Wal-Mart Stores, Domino’s Pizza and yogurt shop franchiser TCBY Enterprises are already in Mexico and have big expansion plans.
*
Q. How will all of this affect U.S. workers?
A. There’s little doubt it will create American jobs, but it’s unlikely the figure will be huge.
In California, the best estimates are that NAFTA will create up to 34,300 net new jobs. That will be a welcome plus but still one-tenth the number of jobs lost in the state’s aerospace and defense industry alone since 1986.
Still, U.S. companies with Mexican plants or exports might be hiring both north and south of the border in coming years, as NAFTA helps boost their overall sales.
Why? Many of these companies--toy maker Mattel in El Segundo for one--manufacture in Mexico and elsewhere around the world. But their engineers, designers, accountants and marketing staffs remain in their U.S. offices. As their Mexican plants export more because of NAFTA, that should modestly boost the companies’ overall employment.
*
Q. Are jobs also in danger, as NAFTA’s foes warned?
A. Some jobs will undoubtedly be moved to Mexico. There’s talk about some large U.S. firms using NAFTA to better “integrate” their worldwide operations, meaning they will shift low-wage operations to Mexico while keeping higher-end jobs at home.
But that’s been happening since Mexico began opening its trade doors in 1986. Superior Industries International, a Van Nuys-based maker of auto wheels, began building a plant in Mexico in May simply because the major U.S. auto makers already have plants there.
* MEXICO CHEERS VOTE: Government and industry supporters of NAFTA cheered the treaty’s passage in the U.S. House. D3.
* ASIAN MARKETS REACT: Asian stocks gained on news of the vote. D2.
