Trade Secrets

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In the weeks leading up to the March 4 primary in Ohio, a new insult entered the increasingly caustic vocabularies of Barack Obama and Hillary Clinton: hypocrite. Hoping to curry favor in a state that has shed thousands of manufacturing jobs in recent years, each attacked the North American Free Trade Agreement (NAFTA), the treaty that lowered barriers to commerce between the United States, Canada, and Mexico. Their disdain for NAFTA was such that both promised the dramatic step of withdrawing from the treaty if Mexico and Canada were unwilling to renegotiate its labor and environmental provisions. But each also accused the other of secretly backing the treaty. Obama alleged that, in 2004, Clinton had called NAFTA a "boon" to the economy, while Clinton pointed to a report that Obama's chief economic adviser had reassured Canadian officials that the candidate's tough talk on the treaty was just "political positioning."

The primary ended with a decisive victory for Clinton, but the charges of hypocrisy are likely to persist. Not only because the campaign continues to Pennsylvania, which has lost over 200,000 manufacturing jobs since 2001, but because they're true. There are few policy wonks or economists, including those supporting or advising Clinton and Obama, who believe what the candidates are saying about the treaty. That's because NAFTA is not the main reason for the recent loss of industrial jobs in the Midwest. It's not even the second most important reason. It comes in at best a very distant third to competition from low-wage China and other Asian countries and to the management mistakes of U.S. firms, particularly in the auto industry. Prominent Democrats who are not running for office recognize that. Ted Strickland--the governor of Ohio, who campaigned for Clinton--dismissed the threat of NAFTA: "The problem now is Southeast Asia. It's China," he said. Privately, even labor officials agree.

To be sure, NAFTA hasn't lived up to the promises made by its original backers. But its most important failing has little to do with U.S. factory jobs being lured south; rather, the treaty's problems stem from its unforeseen effects on the Mexican economy--particularly its agricultural sector. If the candidates are really concerned about the harm NAFTA has done to American workers, they ought to start by talking about the harm it's done to Mexican farmers.

NAFTA, which was implemented on January 1, 1994, either eliminated or phased out tariffs on manufactured goods and agriculture, removed Mexican restrictions on foreign investment, and generally limited what Mexico could do to protect its farms and businesses. Nafta proponents argued that increased U.S. investment would raise Mexican wages. Rising wages would reduce the incentive to emigrate and, along with reduced tariffs, would create demand for Americanmade products. Rising U.S. exports would lead to an increase in U.S. jobs-- 200,000 during the first two years, President Bill Clinton predicted.

Over time, NAFTA has not lived up to such expectations, but nor has it validated the apocalyptic fears of labor unions and Ross Perot, who prophesied a "giant sucking sound" as U.S. jobs went south. Admittedly, some U.S. firms had transferred their operations to Mexico during the 1990s (although the 1994 peso crisis, which drove down Mexican wages, was a more attractive lure than NAFTA itself), but, at the treaty's ten-year anniversary, economists not identified with either side in the raging debate estimated that U.S. job losses had been nearly offset or cancelled by job gains. In 2004, labor economist Sandra Polaski described the "net effect on jobs in the United States" as "miniscule."

That's not to say that American manufacturers have not suffered. From 2001 to 2007, Ohio lost more than 200,000 manufacturing jobs, while the United States as a whole lost well over 3 million. But there is no evidence that NAFTA drove this job loss. In fact, for the nearly eight years after NAFTA took effect, Ohio's manufacturing employment remained fairly constant, at about 1.1 million workers. But, in 2001, a recession began to squeeze the U.S. economy. And, that same year, Beijing's entry into the World Trade Organization accelerated competition from low-wage Chinese manufacturing. Alan Tonelson, a research fellow at the U.S. Business and Industrial Council Educational Foundation who has been an outspoken critic of NAFTA, says, "We have 1,500 member companies, and I can't remember the last time anyone mentioned Mexico as a problem. China is the main problem." The Alliance for American Manufacturing, established last year by the United Steelworkers and U.S. steel companies, toured Ohio during the primary "trying to make sure that a convenient fixation on nafta does not preclude debate on the very real problem of China." In other words, the people most affected by the loss of jobs don't blame the treaty that Clinton and Obama have scapegoated.

The data support their emphasis on China. In 1997, U.S. imports from China were 73 percent of imports from Mexico; last year, imports from China were 154 percent of those from Mexico. According to business analyst Charles McMillion, while the U.S. manufacturing trade deficit with Mexico remained fairly level between 2001 and 2004, our deficit with China doubled to $167 billion.

There is, however, one way in which NAFTA has stressed the American workforce: by increasing the flood of illegal immigrants willing to work for less money. In 1993, the treaty's proponents claimed that NAFTA would actually help keep Mexicans in their native country by increasing economic opportunities there, but, according to the Pew Hispanic Center, annual illegal immigration from Mexico jumped 54 percent in the few years after the treaty was ratified, from 260,000 in 1994 to 400,000 a year from 1995 to 2000. And it has continued growing after that.

There were a number of reasons why. The peso crisis widened the gap between what Mexicans could make at home and what they could make in the United States. And, after 2001, competition from China stymied the growth of Mexican manufacturing and suppressed wages. Employment in the maquiladoras--the border factories that import materials from the United States for assembly and then send them back--has actually declined since 2000.

But, just as important, by phasing out government protections for the country's 3.2 million small farmers, NAFTA drove many of them northward. According to Laura Carlsen of the Center for International Policy, as cheap American foodstuffs flooded Mexico's markets and as U.S. agribusiness moved in, 1.1 million small farmers--and 1.4 million other Mexicans dependent upon the farm sector--were driven out of work between 1993 and 2005. Wages dropped so precipitously that today the income of a farm laborer is one-third that of what it was before NAFTA. As jobs disappeared and wages sank, many of these rural Mexicans emigrated, swelling the ranks of the 12 million illegal immigrants living incognito and competing for low-wage jobs in the United States.

Of course, the rise in U.S. agricultural exports has delighted American farmers, even as it has infuriated their Mexican counterparts (on January 31, hundreds of thousands of them poured into Mexico City to protest NAFTA). That may be why the presidential candidates have not complained about this aspect of the treaty. Instead, Clinton and Obama have promised to renegotiate NAFTA's associated labor and environmental agreements, claiming that they can save U.S. manufacturing jobs by making Mexico live up to international standards. "I would immediately have a trade timeout, and I would take that time to try to fix NAFTA by making it clear that we'll have core labor and environmental standards in the agreement," Clinton said during the candidates' February 26 debate in Cleveland. Obama concurred, "I will make sure that we renegotiate, in the same way that Senator Clinton talked about."

It's hard to see how this would provide a big boost to American workers. Mexico's--and Canada's--labor laws are actually more progressive than U.S. laws. Mexico, for instance, has ratified 78 of the International Labor Organization's core labor standards, while the United States has ratified only 14. Besides which, in an interview with Kevin Hall from the McClatchy newspapers, representatives from neither the Clinton nor the Obama campaign could name a single dispute in which tougher labor or environmental regulations would have benefited American workers and manufacturers.

Still, the treaty could be improved. For 15 years, policy experts have suggested that, instead of seeking a trade arrangement aimed solely at benefiting U.S. companies in the short run, the United States should do for Mexico what the European Union did first for Spain, Portugal, and Greece and is now seeking to do for Eastern Europe: use development aid and temporary protections to upgrade dramatically its economy and infrastructure, particularly its educational system, thereby making Mexico more attractive to Mexicans. Princeton sociologist Douglas Massey has argued that, "if the money devoted to U.S. border enforcement were instead channeled into structural adjustment in Mexico, as was done by the EU for Spain, unauthorized migration would likely disappear as a significant demographic and political issue in North America." And that would ease pressures on American workers.

But politicians--and presidential candidates in particular--are understandably wary of proposals that smack of foreign aid. They would much rather use their opposition to NAFTA to demonstrate that they understand the pitfalls of globalization. "NAFTA is a symbol to the people who are dislocated or in fear of losing their jobs, and it has achieved a significance well beyond its current importance," explains Strickland. But, in singling out NAFTA as the cause of America's industrial woes, Clinton and Obama are stoking voter anger while impeding any attempt to address the treaty's real problems. Which makes them worse than hypocrites; it makes them demagogues.

John B. Judis is a senior editor at The New Republic.

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