A Fast-Track Reality Check

...Under NAFTA’s North American common market, Mexico has, for trade purposes, become a part of the USA...

...This is the flaw that undermines the free-trade argument...

...America’s $5.4 billion favorable balance of trade with Mexico in 1992 has shifted to an $18 billion American trade deficit in 1996...

...Mexican wages stay “anchored to the bottom,” according to analysts such as Shaiken, because the Mexican government exerts pressure on weak Mexican trade unions to set low wages as an inducement to foreign investors...

...And employers haven’t been shy about malung that point...

...Note, moreover, this shift did not occur because Mexico’s homegrown industry suddenly began to outcompete American rivals...

...Since NAFTA, billions of dollars of foreign industrial investments have poured into Mexico...

...Ihally, and most fundamentally, the iron logic of the global free market dictated that as jobs moved south of the border, Mexican wages and living standards would rise toward American levels, Mexico would become a richer consumer market for American-made products, and the balance of trade between Mexico and the United States would tilt in America’s favor...

...As long as Mexican (and other developing-world) wages are kept low as a matter of government policy, inadequate labor rights, or collusion among employers, the living standard of the American middle class will continue to erode...

...Some of the shift is attributable to the collapse of the Mexican peso in 1994, but the negative trade swing began before the peso plunged...

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...Given the difficulties of certification, some economists put the actual total of jobs lost at several hundred thousand...

...Our view is, if we can make Tipana stronger, then their per capita income will increase, their consumption in San Diego will increase, our tax base will increase,” Ross asserted...

...workers for better, higher-shlled jobs...

...To make matters worse, the skill and productivity of Mexican workers is rising rapidly...

...Yes, like others, I was troubled by the prospect of a continuing loss of American manufacturing jobs to low-wage economies such as Mexico, but Ross Perot’s dire image of “a giant suchng sound” echoing across America as 6 million middle-class jobs drained south of the border seemed a colorful but off-the-wall exaggeration...

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...It occurred primarily because such global giants as Sony, Matsushita, Samsung, and Panasonic found that NAFTA ensured their entry into the American market through the back door: produce in Mexico, sell in the USA...

...Certainly I understood that there would be economic pain across the Midwest heartland, the Northeast, and various other industrial pockets-especially in the auto and electronics industries-as American companies leapt to cut costs by jumping production facilities to Tijuana and Baja California, or to the Mexican beltway of factories, called “maquiladoras,” just across the Rio Grande from southern Texas...

...Mexico is a very young country...

...We’re doing product now that we didn’t even dream about in the OS, that didn’t even exist-for computers, for microprocessors, for the medical and electronics industries,” asserts John &ley, an American businessman who operates four maquiladora plants and heads a regional maquiladora trade association...

...This is a gaping hole in the NAFTA theory...

...Singapore, Indonesia, and China...

...Mexican workers are not enjoying the fruits of the NAFTA, boom...

...16-25...

...Just the threat of moving a plant to Tijuana causes wages to go down in numerous industries within the United States...

...They will buy more San Diego, and over time, we’ll blur that border...

...And while it’s true that Ross Perot’s “giant sucking sound” did not materialize, at least 150,000 American workers have been certified as having suffered NAFTA-related job losses...

...LTheir ony is, with all the talk about free trade, we have highly controlled labor markets when it comes to wage setting,” observes Shaiken...

...At least, that’s the argument that Neil Whiteley-Ross, vice president of San Diego’s Economic Development Corporation, made to me...

...This saves Japanese and Korean electronics companies from paying most American duties on their Mexican-based exports...

...When wages remain low in Tijuana, it exerts a chilling effect on wages in Mdwaukee and Detroit, in Stockton, California, and elsewhere,” asserts Shaiken...

...and because foreign and Mexican employers collaborate through their maquiladora trade associations to keep wages low, waming each other that resorting to wage increases to compete for workers will cause dangerous wage spirals...

...Maquiladora workers average a little more than $1 an hour...

...Furthermore, Congress would provide money to retrain NAFTA-displaced US...

...Besides, it was argued, after more than a decade of increasing global competition, there was no way to build an economic moat around the continental US...

...To work fairly and effectively, NAFTA needs fixing to overcome this obstacle, and so does any future trade agreement...

...A Fast-Track Reality Check A veteran reporter looks at the not-so-nifty side of NAFTA BY HEDRICK SMITH LIKE MANY OTHER LONG-TIME free traders, I was persuaded (in retrospect, perhaps lulled) by the arguments in favor of NAFTA, the treaty that created a common market linking Mexico, Canada, aid the United States, when it passed Congress in late 1993...

...The drag effect of Mexico and other low-wage foreign countries is one major reason why, even with unemployment at a 24-year low, the income of the average American household today is lower than it was in 1989...

...This point was driven home to me during a visit to a Japaneseowned electronics plant making computer memory devices...

...So goods made in Mexico meet American requirements for local content...

...According to Mexican labor statistics and analysis by American economists and scholars, such as Harley Shaiken of the University of California at Berkeley, averagc workers in Mexican industry, including the high-tech maquiladoras, now earn about half of what they made in 1980...

...The anticipated growth in Mexican consumers’ appetite and purchasing power for American-made goods has not materialized...

...You remember the pitch: Not only would American consumers benefit from cheaper products, but a job boom in Mexico would presumably slow the flow of illegal Mexican immigrants into California and Texas...

...The plant’s Mexican manager was explaining his problems with high turnover among his 300 workers-close to 100 percent a year...

...Despite gleaming new micro-electronic clean rooms, the increasing complexity of the work, and the production boom in Mexico’s new industrial belts, the wages, living standards, and purchasing power of the Mexican maquiladora workforce have not risen...

...VVhen you combine Mexican government policy, weak unions or governmentdominated unions, and employers who are collaborating in these areas, what you get are very low wages in combination with high productivity...

...They’re putting over a million workers a year into the marketplace...

...In Tijuana, there are more than 600 maquiladora factories, enjoying both Mexican and American trade privileges, and employing more than 140,000 workers...

...This enables Mexicans to compete for more and more middle-class American jobs, and as John &ley told me, this trend will escalate in the years ahead., “I can’t project the technology, but I know that Tijuana can keep up with the need for technical people and the ability to assemble and build the products,” says Rdey...

...25 be sure, the scorecard on NAFTA is far from complete...

...In short, the Mexican drag effect on American living standards is most likely to spread in the years ahead...

...Exen more fundamentally, something went badly wrong with the “iron logic” of the market...

...They will need more products...

...And the idea of crowds of Mexicans crossing the border to shop in San Diego is a pipe-dream...

...I asked the manager why he didn’t raise his workers’ pay to keep them on the job, and he replied that he couldn’t because he had to pay what his competitors paid and not more...

...Instead of the American economy exerting an upward pull on Mexican wages, the Mexican economy has exerted a downward pull on American wages...

...But the work going to Mexico involved low-slulled, low-paylng industrial jobs that American workers wouldn’t want, and anyway, those jobs were already being exported to HEDRICK SMITH is correspondent and executive producer of "Surviving the Bottom Line," a PBS documentary series on different strategies being adopted by Americans to deal with the global economy...

...These people are being more educated than they have been in the past, and they’re a very good work force...

...to protect our industry...

...In short, NAFTAls impact is the opposite of what was predicted...

...But recent reporting on both sides of the border for a new PBS series, “Surviving the Bottom Line,” has sobered me considerably on NAFTA and suggests that it’s time for a reality check on some of the basic flaws in the pro-NAFTA logic...