"It’s hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed.
"A more important cause of Ohio’s jobs exodus is the rise of China, India and the old Soviet bloc, which has brought hundreds of millions of workers into the global economy. New technology and better transportation have then made it easier for jobs to be done in those places and elsewhere. To put it in concrete terms, your credit card’s customer service center isn’t in Ireland because of a new trade deal."
<http://www.nytimes.com/2008/02/27/business/27leonhardt.html>
Rick Salutin wrote:
> Can anyone honestly think little Mexico and
> puny Canada fooled the mighty, rich, ruthless
> U.S. into doing something it didn't
> understand? It was their idea to start with!
James Galbraith says, no, it wasn't:
Already by the late 1960s, Mexico had exhausted the path of inward-looking industrial growth known as the era of "stabilizing development." There was a balance-of-payments crisis, but then for a giddy moment from 1976 to 1982, an oil and debt bonanza kept the dangers at bay. The debt crisis and the oil crash put an end to that. In 1986, Miguel de la Madrid took Mexico into the GATT, lowering tariffs and dealing a further major blow to domestic industry.
By that time, Mexico had no choice except to pursue integration with the United States. Most of what NAFTA accomplished, by way of further Mexican tariff reduction, would otherwise have been done by Mexico's government on its own. Moreover, US trade barriers to Mexican manufactures (from the maquiladora) were already trivial. Thus NAFTA itself had very little practical effect on trade, except in agriculture (see below).
Why then care, one way or the other? Mexico's top economists in the early 1990s--who were far more influential than their U.S. counterparts--had important reasons. They remembered that in 1982 the Reagan Treasury had given them no help at a moment of dire crisis. NAFTA would tie the two countries together. I heard a top aide to President Salinas make this argument in Mexico City around 1992, and I wrote about it during the NAFTA debate.
The calculation proved correct. Financial crisis hit in late 1994, a year after NAFTA took effect. It was caused by the contested presidential campaign, which drove Mexico to borrow heavily to support the campaign of Ernesto Zedillo. When the election was over the bills came due and Mexico's creditors panicked. The Clinton administration--spearheaded by Larry Summers--took swift action, and the crisis came under control much more quickly than in the 1980s. (It was a case of a Harvard guy bailing out a Yale guy.) Mexico was then able to take advantage of its proximity to the US market during our boom from 1997 to 2000. The prosperity of this period was uneven--Mexico's central and southern regions scarcely grew--but it was genuine and important in the north.
The big cost of NAFTA was to Mexican farmers. After NAFTA Mexican corn production suffered, while the 1995 devaluation raised the peso cost of corn flour purchased from the United States. (Jeff Faux's tortilla comparison undoubtedly has much to do with the effect of the 1995 crisis on the external purchasing power of the minimum wage.) Many farmers were displaced, important maize biodiversity was lost, and it is an open moral question whether the gains from a relatively swift resolution of the crisis outweigh the losses to the rural poor. That's an issue on which any reasonable supporter of NAFTA should have qualms; I certainly have them.
Still, it is surely wrong to blame any significant job loss in the United States on NAFTA. Many jobs left before NAFTA. Others would have left even if NAFTA had not passed. And anyway those which did not leave for Mexico would have left for China. Last I looked, we do not have a free trade agreement with China.
<http://tpmcafe.talkingpointsmemo.com/2005/11/11/confessions_of_an_accused_reac/>
more Galbraith:
The Problem With Standards
The populist remedy for low-wage competition is to impose standards -- labor standards and environmental standards -- on the companies who employ them. Though Brown and Dorgan are not specific on the point, their emphasis on pay suggests they would favor standards for pay -- not based on U.S. wage levels, surely, but on some relevant measure of abuse and exploitation in the trading partner. As noted, such a policy would have no effect on Canada, Japan, or Europe, and therefore none on half or more of our total trade. But it could hit hard on trade with China, and one has to presume that is the intent. So let's discuss how a wage standard, as a theoretical possibility, might work.
There are several options. First, suppose the standard were based on wages measured in dollars. That would certainly penalize China, where the dollar value of the money wage in manufacturing is low, but where nutrition, health, education, and living standards for urban workers are quite high. It would favor (say) Brazil, where the reverse is actually the case. In other words, it would cut against a country where workers do not, generally, live in slums, and in favor of a country where many of them do.
Well, what about a standard based on relative wages in manufacturing? As noted, wages in manufacturing in China are low, compared to other wages in China. Suppose we insisted that they be raised?
This sounds sensible, but it doesn't account for the social status of the manufacturing job. Americans like to think of manufacturing as a mainstay job for households -- a high-prestige, long-term association for family breadwinners, such as was the case, in postwar history, in our backbone industries of automobiles, oil, aviation and steel. But in a country whose exports tilt to clothing, consumer electronics, and auto parts, things are different. Export-sector manufacturing in China is a place of short-term jobs mainly for young women. It is a tedious, repetitive, low-skill, and low-wage compared to almost everything else (except farming) in China itself. What is relevant for Chinese living standards is not the real wage in manufacturing. It is, rather, the real wage in the society writ large -- including not only the workers in factories (who are, as noted above, relatively few in number) but their families and friends who do something else. That's what determines whether a population is "underpaid, exploited, and abused."
So, let's consider a standard based on average real wages in the trading partner, perhaps measured by such quality-of-life indicators as life expectancy, infant mortality, and literacy. Such a standard would favor China over, say, India or most of sub-Saharan Africa. Should the United States therefore give preferential trade access, in general, to China? Should we exclude, say, textiles from much of Africa, India, and even Haiti, because their living standards and life expectancies are lower? As a strategy for world development, would that make sense? It would, of course, make no difference to American wages, since it would favor trade with the country that already runs the largest surplus with us.
Most labor standard advocates avoid the endlessly tricky question of a standard for pay, and emphasize instead the ability to form independent unions. Unquestionably, unions are important. But again, the Chinese case poses a conundrum for this rule. Should we penalize a country which has raised real wages by a factor of four or five over thirty years without independent unions? Should we favor countries (such as Brazil or Argentina) which have powerful independent unions -- and yet have seen falling real wages for two decades? To take another example, Mexico's oligarchs ran a vicious class war for twenty years against their workers, partly to satisfy the New York banks. China's leaders, who had no debts, didn't do that. On that ground, should we favor Mexico's nominally capitalist oligarchs over China's nominally communist bureaucrats? The logic escapes me.
International labor standards -- such as the International Labor Organization core labor standards, adopted in 1997 -- do have an important role. Standards based on universal social principles impose bans on products made with child labor or in prisons, or products made from endangered species. Anti-sweatshop campaigns are an excellent practice. Flagrant abuses in labor practices can be targeted and often ended by such means.
But as a trade strategy, the potential of such universals is minor. The proscribed products are not major items in trade, and they never compete seriously with what American workers do. Children and prisoners are not widely used anywhere to produce advanced consumer goods for export markets, for a simple reason: They aren't up to the job at any price. No one should think that a rigorous ban on such products (handmade carpets come to mind) would make Chinese exports any less cheap than they presently are.
Environmental standards also won't ever become major tools of a trade policy. The first problem is that regulatory differences have little to do with environmental impact in consumer good production (mining and oil are different stories, but we don't buy minerals or oil from China). Firms installing new plant and equipment usually use the latest technologies because that is also the cheapest way to produce; newer technologies also tend to be cleaner. It is therefore quite possible for a foreign firm to cost American jobs while improving environmental quality -- replacing an old and dirtier American factory with a new and cleaner Asian one. (China has lots of very dirty factories, but not generally in the export trades.)
A second problem is, shall we say, a practical one: Such standards could cut sharply against the United States. Just for example, how about genetically-modified organisms -- frankenfoods? This is a major issue in Europe, and surely, it's a proper environmental concern. Or suppose other countries got the idea that CO2 emissions should be the basis of environmental trade standards. The result might be good for the planet, but it would be grim for Boeing. Viewed in the context of global warming, the idea that the United States is a paragon of good environmental management is plainly absurd.
So here's the hard question: Leaving aside whether standards work as advertised, are they good tools for "getting the job done?" Would, in other words, it be a good idea to impede or block Chinese exports to the United States -- whether through labor or environmental standards or some other trick? Should we support Senator Chuck Schumer, in his demand that China either revalue its currency sharply or face a prohibitive tariff on its textiles? In short, is the China trade something that is bad for America and American workers, and that we should be looking to reduce?
Here are three reasons why not:
First, blocking trade with China would not bring a single job back to the United States. It would only cause Japan, or Taiwan, or Korea, or American multinationals to shift their out-sourcing from China to some other low-wage country, such as Vietnam. It may be good development policy to divide up our imports among many countries -- as we did for decades with textiles under the Multi-Fiber agreements. But it isn't a good policy for saving American jobs.
Second, if blocking Chinese exports to the United States really did cut into our imports overall, that would raise prices and lower real wages here, especially for the lowest-wage Americans who rely most on cheap imports to meet their budgets. The higher prices would show up as inflation, prompting higher interest rates from Ben Bernanke's Federal Reserve. Blocking inexpensive imports creates a transfer, in other words, from low-wage Americans working to bankers and investors. Is this what populists want?
Third, there would be retaliation. China is an enormous market, especially for advanced U.S. products such as aircraft. Those sales could, and very likely would, shift to Europe. The losers in that case would be high-paid American workers at firms like Boeing. This is where the U.S. has real competitive strength, which would be needlessly put at risk, and not just temporarily. Once competitive advantage in high technology is lost, it's very hard to get back.
China's dominance of the world market for low-wage manufactured exports is a problem. But it is a problem for Malaysia, Thailand, the Philippines, and other low-wage countries. It is not a problem whose solution would help American workers. And wage standards, in any form, are not a solution to competition from China. If they are not a solution to the China problem, and hardly apply to any trade woes we may have with Europe, Canada, and Japan -- what's the point?
Where did the emphasis on standards in trade agreements come from? Of course it's an outgrowth of the NAFTA debate twelve years ago. So it's to NAFTA we should turn now.
Time to End the NAFTA Wars
During the fight over NAFTA, some Democrats insisted on side agreements for labor and the environment as the price of a pro-NAFTA vote. Those agreements, of course, did little. Some observers believe they were always a sham. But those who backed them, back in 1994, invested a lot of political capital in them. Now they argue that the source of their failure was not a weak idea but a lack of zeal in implementing it. This is understandable; unfortunately, it is also the argument conservatives always make when their ideas don't work out.
Certainly, NAFTA was never a pro-worker deal. As Dorgan and Brown correctly say in their December op-ed, the intent was to open Mexico to U.S. finance and insurance as well as farm, pharmaceutical, machinery exports, and to protect the rights of investors. In return, Mexican elites wanted, and got, closer financial cooperation from the U.S. Treasury in times of crisis. Overall, the effect on Mexican factory workers was hard and the effect on Mexican farmers was even harder.
But NAFTA was not a "job-killer" for Americans. It had little effect on American manufacturing jobs and wages, for a basic reason: NAFTA made almost no difference to the tariff treatment of Mexican goods entering the United States. Tariff rates on Mexican exports to the U.S. averaged around three percent, and many goods (under the old maquiladora program) entered duty free. Manufactures trade from Mexico to the United States took off in the wake of the debt crisis, and was already booming before NAFTA.
Did jobs leave the United States to take advantage of cheaper Mexican labor? Of course, some did. Were American workers pressured to cut wages, because of Mexican competition? Of course, some were. But that happened because of Mexico, not because of NAFTA. Mexico would not disappear if NAFTA did. From the standpoint of American workers, NAFTA and its successors are just scapegoats. The fact is, China has since passed Mexico as the prime out-sourcing threat, even though we have no "free trade" agreement with China.
NAFTA will continue to have big effects on farmers. Mexico used to have a strongly protected population of maize farmers; NAFTA put an end to that and opened Mexican markets to U.S. corn. The result was predictable: as the food moved South, the people who used to produce it moved North. If any single point of NAFTA should be reconsidered, it's whether we really want to force Mexico's farm market completely open. But these are migration and farm policy issues, which have nothing to do with the fate of industrial employment in the United States.
As for CAFTA -- the Central American Free Trade Agreement -- that agreement contains numerous predatory provisions, abusing the power of North American monopolies (especially in drugs) to maintain and extend their patent protections in these small and low-income markets. It contains the same disruptive provisions in agriculture: More exports from the United States, more immigrants coming back. CAFTA is, in short, a bad idea. Central Americans only accepted it because otherwise they might have lost the trade access to U.S. markets they presently enjoy. But the manufacturing provisions are trivial, and the same is true of trade deals with Singapore, Bahrain, Jordan, and other actual or proposed FTAs.
In short, populists need to get over the NAFTA fight. We need to move beyond the lines of argument established in that debate, which gave us our preoccupation with the "standards fix" to trade problems. Some of the successor agreements should still be resisted, on grounds directly related to their actual provisions, which are rapacious and predatory. But these have little or nothing to do with the future of employment and wages in the United States.
<http://www.prospect.org/cs/articles?article=why_populists_need_to_rethink_trade>