The Washington-Wall Street ballyhoo of early results under the North American Free Trade Agreement (NAFTA) is underway in a big way. From press releases to dutiful business writers and columnists to cartoons, the story is that all three nations — the U.S., Mexico and Canada are reaping the benefits of expanded trade.
Wait a minute! Let’s look behind the figures that show rising trade levels. NAFTA went into effect January 1, 1994. Two weeks prior to the NAFTA vote in 1993, the U.S. and the authoritarian Mexican government secretly agreed to allow Mexico to tap up to $6 billion to stabilize the Mexico peso. Three billion dollars of that draw comes from the U.S. Treasury and the other three billion dollars comes from the Federal Reserve. The deal was disclosed by the U.S. government earlier this year.
Nonetheless the Mexican peso was devalued by 9 percent which cancelled out most of the tariff reductions that Mexico conceded to the U.S. That meant that the cost of U.S. exports increased by 9 percent.
Financial pundits predict another peso devaluation in the range of 20 to 30 percent over the next several months, further undercutting American workers by reducing the Mexico wage level by that amount.
More companies will be induced to relocate all or part of their production in Mexico. Already, during the first 8 months of 1994, a factory-a-day either has moved production out of the U.S. or laid off U.S. workers because of NAFTA.
While gross volume of trade between Mexico and the U.S. grew since January, the net exports in favor of the U.S. shrank. Remarkably, the U.S. trade deficit with Mexico increased in the high value manufacturing sector, such as electrical machinery, surgical equipment and motor vehicles and parts. All of which reflects that much of U.S. exports is factory equipment to set up shop. Other U.S. exports are unfinished goods shipped across the Rio Grande to the border factories where exploited labor in polluted environments assemble or weave the goods for a turnaround trip to the U.S. General statistics tend to belie these existential conditions.
The ballyhoo made a big deal about the surge in exports of U.S. cars to Mexico this year. But consider the comparisons. In the January-May 1994 period, U.S. auto companies sold 16,957 vehicles to Mexico versus 2,672 vehicles for the comparable time period in 1993. But at the same time, these companies imported from their Mexican factories 154,302 vehicles to the U.S., an increase of 16,779 vehicles over the same time in 1993.
The U.S. trade deficit with Canada has gone from $8 billion in 1992 to $10.7 billion in 1993 and, this year, estimates put the deficit at $12 billion. Another way of looking at trade deficits is that the deficit country is, in effect, exporting its jobs.
NAFTA advocates said that passage of the trade pact would slow the tide of illegal immigration. Actually, illegal immigration has increased. So has illegal drug smuggling as the number of Mexican trucks surging across the border rises sharply.
Don’t expect NAFTA to be debated by the two parties in the coming pre-election days. Just as the Democrats and the Republicans did with the Congressional pay grab in 1990, an agreement was concluded in Washington by the two parties not to make NAFTA an issue against each other’s candidates.
NAFTA procedures and tribunals, in case of disputes, are secretive and undemocratic. In like spirit, the two Parties concur on a ‘mum’s the word’ tactic toward the voters.