Opponents claim NAFTA will cause what Ross Perot calls “a giant sucking sound” as American jobs are siphoned off to low-pay Mexico.
Many economists expect the agreement to produce moderate job growth in both countries. Dramatic economic and trade liberalization has been undertaken by the government of President Carlos Salinas de Gortari. Already, nearly three quarters of all Mexican exports to the United States cross the border duty-free, and no giant sucking sound has been heard yet. Instead, U.S. exports to Mexico are increasing much more rapidly than its imports from that country, turning America’s $5 billion 1986 trade deficit into a $4 billion surplus now. Under a “side rule” negotiated two weeks ago, Mexico is supposed to promote fair wages. Although most Mexican workers are poorly paid (some earn as little as 57 cents an hour), wages already have risen rapidly for skilled labor in the industrial sector. According to University of Michigan economist William Moller Jr., those workers averaged $3.80 an hour in 1992, and their wages are growing at a rate of 9 percent a year.
Some environmentalists who oppose NAFTA say the agreement will encourage American polluters to move their operations into Mexico.
Another side deal is supposed to ensure that Mexico enforces its antipollution rules, which have been widely flouted. Even without airtight guarantees, some environmental groups–including the National Wildlife Federation, the Environmental Defense Fund and the Natural Resources Defense Council–have given qualified support to the NAFTA process, hoping for at least partial control over Mexican pollution. The Wildlife Federation’s president, Jay Hair, has said that although the agreement may not be “all that environmentalists might want, the ideal should not be the enemy of the good.”
Supporters of NAFTA argue that if Congress rejects the deal, Mexico’s economy will implode, and its politics will return to the dark ages, setting off a new wave of illegal emigration.
This apocalypse scenario is vastly overstated. Rejection of NAFTA would be a severe blow to the Mexican economy, but it would not wipe out all the economic gains of the past six years. Since Salinas took office, Mexico has transformed itself from a state-managed economy to one that is largely private and competitive. Although the country is still poor, there has been a boom in foreign investment, consumer incomes and trade. That process can continue–albeit more slowly–without the trade agreement.
The political impact of rejection is more difficult to predict. Salinas leaves office next year, and he has not yet designated his successor. If Washington rejects the trade deal, Mexican nationalism could be rekindled, damaging relations with the United States. But rejection would also weaken the authoritarian Institutional Revolutionary Party (PRI), which has ruled Mexico for 64 years. If NAFTA doesn’t make it, the blow to the PRI’s legitimacy might allow the democratic opposition to grow.
As for undocumented aliens, a near tidal wave of illegal immigration is already underway. Passage of NAFTA could eventually help keep Mexicans at home by providing them with higher incomes and increased opportunity.
Opponents say that some United States industries will be wiped out by NAFTA.
The agreement contains a mechanism to prevent rapid job losses; tariff rates would automatically “snap back” to previous levels if an import surge threatens a U.S. industry. There still would be job losses in specific industries, but they would be phased in over a period of up to 15 years, and they should be more than offset by job creation elsewhere in the U.S. economy.
Opponents say low wages will always lure industry out of high-wage areas.
Perot and U.S. labor unions keep saying this, but the reality is not that simple. Labor cost is only one factor in deciding where to build a plant, and Mexico is sadly lacking in other areas of importance to business: education, infrastructure, honest and efficient local government. General Motors just brought 1,000 jobs back from Mexico because it found that Americans could do the work more cost-effectively, despite their higher wages. If low wages were the only reason for locating a factory, Bangladesh would be booming today.
