Timothy T. Taylor Home Page
Journal of Economic Perspectives
Articles and Writing
Economics Textbook
Classroom Teaching
The Teaching Company
High School Pedagogy

Articles and Writing

August 12, 1993
"NAFTA Fears are More Hype Than Fact - To Succeed in a World of Tough Competitors, Nations Must Find Ways to Accelerate the Evolution from Industries and Jobs of the Present to Those of the Future"
San Jose Mercury News
By Timothy Taylor
<< Back to 1993 menu

EVERYONE SEEMS to agree that the North American Free Trade Agreement will increase the overall size of the U.S. and the Mexican economy. The difference of opinion is over the sources of that gain.

Supporters of the treaty emphasize that trade allows nations to specialize in their areas of relative strength and to capture larger markets, leading to gains in economic efficiency. NAFTA opponents are concerned that while large U.S. corporations and their shareholders will benefit from trade, these gains will come at the expense of workers and the environment, as U.S. firms exploit Mexico's lower wages and less rigorous environmental standards.

These fears have always been more hype than evidence, as two just-released studies make clear. One is "A Budgetary and Economic Analysis of the North American Free Trade Agreement," by the non-partisan Congressional Budget Office. The other is "NAFTA and the Environment," a collection of essays edited by Terry Anderson, an economist at Montana State University.

NAFTA will displace about 20,000 U.S. workers from their jobs each year over the 10 years after it is enacted, according to the consensus of economic studies from the budget office report. In the ebb and flow of the U.S. economy, about 2 million Americans are displaced from jobs every year; NAFTA displacements will add just 1 percent to that number. However, the agreement will be, on balance, a net job creator, adding perhaps 30,000 jobs a year over 10 years -- although the effects will be scarcely perceptible amid the 120 million jobs in the U.S. economy.

Of course, the people displaced by NAFTA are not likely to be well- positioned to take advantage of the new opportunities. Low-wage industries, like producing fresh vegetables or sewing clothing, are most likely to be hurt by Mexican competition, while the auto, textile and petroleum industries will be among those helped.

To succeed in a world of tough competitors, nations must find ways to accelerate the evolution from industries and jobs of the present to those of the future. This country does not particularly excel at pushing for the continuing education of all its workers, and assuring that displaced workers are retrained and placed in new jobs. But NAFTA is not the cause of this problem, and blocking NAFTA is no solution to it.

Some NAFTA opponents also claim to be concerned about Mexican workers, but those protestations ring hollow. It is surely a warped and imperialist vision that would "help" Mexican workers by denying them the chance for skills, jobs, and income that NAFTA would bring.

A number of environmental organizations have endorsed NAFTA, including the Environmental Defense Fund and the National Resources Defense Council. William Reilly, administrator of the Environmental Protection Agency during the Bush administration and now a senior fellow at the World Wildlife Fund, recently defended NAFTA as good for the environment in a letter to the Wall Street Journal.

But others paint a gloomier picture, one where U.S. companies, overburdened by environmental regulation, slip over the border, to be greeted by a Mexico so desperate for jobs and investment that it winks at pollution. Fortunately, this nightmare vision is wrong on both its economics and its politics.

Environmental protection costs are only 1 or 2 percent of total business outlays, so the chance to reduce these costs is not likely to trigger a stampede over the Mexican border.

The real question is whether there are certain industries where the cost of U.S. environmental laws is substantially higher, where low-wage Mexican labor might be especially attractive, where the costs of relocating are not too high, and where Mexican environmental law is weak. The Office of the U.S. Trade Representative examined a list of 445 industries, to discover which ones met these four criteria. The office found exactly one industry likely to move for environmental reasons, the "gray and ductile foundry industry."

Frankly, I have no clear idea of what a gray and ductile foundry is, but I concur with the judgment of Bruce Yandle, a Clemson economist writing in the Anderson volume, that "there is no case for wholesale out-migration of U.S. plants to Mexico. The facts simply do not support the argument."

Moreover, a number of statements by President Carlos Salinas de Gortari confirm that Mexico has no interest in becoming a haven for polluters. Major environmental legislation was passed in 1988; Mexico's spending on enforcing the law has increased by a factor of 10 since that time; NAFTA itself had a number of environmental protections even before the recent "side agreements." In fact, Salinas received the 1991 Earth Prize from the Nobel family and the United Nations for environmental statesmanship.

To be sure, Mexican environmental standards are below American levels. But as nations become richer, they also become cleaner and greener. For example, 65 million Mexicans are currently without sewage facilities. Keeping Mexico poor by blocking trade will not build a single sewage treatment plant, or provide the funding and impetus for other environmental improvements.

Opposition to NAFTA is an attempt to avoid certain exaggerated risks by blocking any change at all. But if NAFTA bogs down now, both workers as a group and the environment will suffer.

<< Back to 1993 menu