NAFTA SCORECARD WHO GAINED, WHO WAS PAINED
On balance, the Congressional Research Service concluded NAFTA’s overall impact on the U.S. economy has been “relatively modest.”
As President Trump seeks to renegotiate the North American Free Trade Agreement with Canada and Mexico, supporters and critics paint entirely different pictures of the 1994 accord. Backers see a shining example of prosperity that sent trade among the nations soaring from $290 billion in 1993 to more than $1.1 trillion in 2016, according to Council on Foreign Relations estimates.
Opponents, who include Trump, see a dark cloud of shuttered factories in Rust Belt states, where companies fleeing to cheap-labor Mexico put millions of U.S. workers out of jobs — or forced them to accept lower wages. The true impact of NAFTA probably is somewhere in the middle.
“The overall economic impact of NAFTA is difficult to measure,” the Congressional Research Service concedes.
Here is a closer look at what the U.S. and Mexico gained and lost under NAFTA: UNITED STATES: BENEFITS Before NAFTA, Mexico had high tariffs to protect its domestic economy from U.S. imports. But after the accord took effect, Mexican tariffs on U.S. imports fell from about 10% to 3% in 1996, according to the Congressional Research Service. That produced a boom for U.S. companies as Mexico became what is now the second-largest export market for the U.S. after Canada. The value of trade be- tween the U.S. and Mexico ballooned more than five-fold since 1992 to $525 billion in 2015, according to U.S. government data.
Total U.S. goods exported to Mexico in 2016 were $231 billion, up 455% from 1993, according to the Office of the U.S. Trade Representative. An estimated 1.9 million U.S. jobs depend on those exports, the Peterson Institute for International Economics estimates.
The U.S. also has benefited from the continuing growth of Mexico’s economy, which has given rise to a middle class that buys more U.S. products and slowed Mexican migration north in search of a better life.
From 2009 to 2014, about 870,000 Mexicans entered the U.S., down from 2.94 million in the five-year period between 1995 and 2000, according to Pew Research Center. During that span, the number of Mexicans leaving the U.S. to head back home exceeded Mexicans coming to the U.S., Pew said. LOSSES The Economic Policy Institute (EPI), a liberal think tank, estimated in 2013 that NAFTA caused the di- rect loss of about 700,000 jobs because of manufacturers moving to Mexico, where wages are 30% of that of an American factory worker on average.
“There were some job gains along the border in service and retail sectors resulting from increased trucking activity, but these gains are small in relation to the losses and are in lower paying occupations,” it said.
Critics of NAFTA also said the flight of American companies to Mexico led to lower wages in the U.S. But that claim is disputed by a report last year from the U.S. International Trade Commission, which said NAFTA had “essentially no effect on real wages in the United States of either skilled or unskilled workers.”
On balance, the Congressional Research Service concluded NAFTA’s overall impact on the U.S. economy has been “relatively modest” because trade with Canada and Mexico accounts for less than 5% of U.S. GDP.
“U.S. trade with Mexico and Canada was already growing prior to NAFTA and it likely would have continued to do so without an agreement,” the CRS said.
MEXICO: BENEFITS NAFTA has had a much bigger positive impact on Mexico’s economy as a result of U.S. companies opening factories, buying from local suppliers and hiring Mexican workers. The investment from north of the border has expanded the country’s technology knowhow, business sophistication and living standards for average Mexicans.
Mexico’s per capita GDP rose from $5,691 in 1994 to $9,005 in 2015, according to the World Bank. The number of people living in poverty fell from 9.2 million in 1994 to 3.8 million in 2014, the World Bank reported.
The United States is by far the largest export market for Mexico: 80% are targeted for American consumers.
U.S. foreign direct investment in Mexico increased from $15.2 billion in 1993 to $92.8 billion in 2015, particularly in the auto industry, according to the Council on Foreign Relations. That has helped boost the productivity of Mexican factories. The number of auto workers in Mexico rose from 122,000 in 1994 to 552,000 in 2013, according to the Peterson Institute.
The number of auto workers in the U.S. fell by 30%, or about 350,000, during the same period to 820,000.
“NAFTA played a decisive role in the recovery of the Mexican economy,” Gary Clyde Hufbauer, Cathleen Cimino and Tyler Moran wrote in a 2014 NAFTA assessment for the Peterson Institute. LOSSES The Mexican economy averaged about 6.5% in growth between 1960 and 1980. The rate actually fell after NAFTA took effect, though one of reasons could be that growth slows as a country develops.
Mark Weisbrot, an economist and co-director of the Center for Economic and Policy Research, says NAFTA is partly to blame for Mexico’s slower growth. It ranks 15th out of 20 Latin American countries in growth of income per person since 1994, he says.
“Beginning around 1980, Mexico adopted a whole set of ‘Washington consensus’ policies” that abandoned policies to develop domestic industries, encouraged greater international trade and adopted tighter budget and interest rate policies. These “reforms ... led to a long term, drastically lower rate of growth. And we’ve seen very little progress in wages and poverty reduction,” he said.
Mexican workers’ productivity “is no higher than it was 30 years ago” and most of the country’s growth came from expanding the labor pool, Jaana Remes, an economist with McKinsey & Company, wrote in an essay in the Peterson Institute’s 2014 NAFTA assessment. Its labor productivity growth lags other developing nations, including China, India, Brazil, Chile and Peru.
Income disparity persists. The richest 1% of Mexicans own 43% of Mexico’s wealth, according to a 2015 report by Oxfam. “A number of studies have found that ... the benefits (of NAFTA) have not been evenly distributed throughout the country,” the Congressional Research Service said.