The future of the North American Free Trade Agreement is uncertain. NAFTA went into effect 23 years ago, with a purpose to open up trade between the United States, Canada and Mexico. Earlier this year the Trump administration moved to renegotiate the terms of the treaty, and the talks have been extended into the new year.
In Connecticut nearly 6,000 companies export their products and services to international markets. If NAFTA falls apart, it could have a significant impact on these local businesses.
Lori Wallach, director of Public Citizen’s Global Trade Watch, has worked with international trade policies and treaties for 25 years. Wallach was also involved in the original NAFTA debate in the 1990s.
All Things Considered Host Bill Buchner recently spoke with Wallach from her office in Washington, D.C. Below is a transcript of their conversation.
Hello.
Hello. Thank you.
How would you evaluate the impact NAFTA has had on the Connecticut economy?
Since NAFTA went into effect, Connecticut has lost more than 100,000 of its manufacturing jobs. That’s one-third of the total manufacturing jobs that existed in the early 1990s.
Connecticut’s top 10 exports went from being in trade surplus with Mexico and Canada into a deficit, and that includes transportation equipment components, chemicals, electronic equipment, etc. You now have $115 billion deficit in those top Connecticut export products that previously were in a small surplus with those countries.
You wrote an article for the Huffington Post, and you advocated for NAFTA to be replaced rather than tweaked. Why is that?
You mentioned as you started that the purpose of NAFTA was to open trade. And that’s certainly how it was sold. But at the core of the agreement are protections that help make it easier and to outsource jobs. There are investor protections that guarantee special treatment if a company leaves. And in the case of NAFTA, they were leaving to go after Mexican wages, which the manufacturing median wage is $1.80 an hour. So 1/20th, 1/15th of what a U.S. worker makes.
So it was an agreement that, more than being about trade, was about a certain kind of corporate protectionism. There were extension in medical patents that raised up drug prices, there are limits on inspection and safety for imported food. So all of that stuff has nothing to do with trade.
What would need to be dealt with in NAFTA is to get rid of the incentives to outsource and put in place the labor and environmental standards that are strongly enforced to bring up wages, not just here but we need to bring them up in Mexico. If Mexico’s wages are that low, there will be a continual pull to outsource American jobs.
I had heard that after NAFTA went into effect, the wages in Mexico actually dropped. Is that true?
Sadly that is true. The median real wage, the inflation adjusted wage for a manufacturing workers in Mexico is down nine percent according to the OECD. Sadly, it’s been a strategy of the Mexican government, which has a system of company-friendly unions that don’t really represent the workers, who sit down with the government and with the equivalent of the Chamber of Commerce and instead of having the market, supply and demand and union rights determine wages, workers negotiating for a raise, those three entities negotiate what the pay raise will be or not. Their government is actually colluding to keep wages down and that’s how they’re trying to attract investment.
We spoke with Peter Gioia, vice president and economist for the Connecticut Business and Industry Association, and he says the opposite, that NAFTA should be fixed but not scrapped. Here’s a clip of what he said:
In regards to Connecticut’s interaction with Canada, NAFTA has been positive. We do a lot of trade with Canada, it’s been something that has, I think, facilitated trade and overall that aspect of NAFTA has been a net positive. However, Mexico has not been a net positive. It’s been a net negative.
Gioia said the labor and environmental rules in Mexico are drastically different from the United States and that has created a trade imbalance for Connecticut. Is this true for most states, if a few parts of the agreement were updated, then the entire treaty could hold?
Well, what we’re calling for is a replacement in the sense of renegotiating those pro-outsourcing rules. So we’re happy to keep the tariffs where they are. No one is trying to increase the border taxes.
The question is, should there be incentives that promote outsourcing of American jobs, that make it less risky to leave? Should there be rules banning us from reinvesting our tax dollars to buy things made in America? Should there be limits in food safety?
If we really want to rebuild American manufacturing, if we want to bring up wages for the 60 plus percent of Americans without a college degree, if we want to have less income inequality in our country then we actually need to raise standards and wages in Mexico for workers to do better here.
And that would require a new replacement NAFTA that builds on the benefits of the trade between the countries. But instead of being loaded with corporate goodies that make it cheaper to outsource, are loaded with some rules for the road that actually lift up standards and wages for all of the countries.
I don’t suppose you have a crystal ball in front of you, but do you think the U.S. will remain in the treaty, the ultimate outcome here?
You know, I think it totally depends on what the corporate lobbies’ position is and then a related question of where Mexico and Canada go.
If the other two NAFTA countries continue to simply reject any engagement on proposals that, though it sounds shocking, a lot of congressional Democrats, a lot of unions, consumer groups like mine, think are the right direction that this administration has made on getting rid of the outsourcing incentives, etc., if the Mexican and Canadian government continue to refuse to deal with this, which is what the corporate guys are telling them, I think there could be a withdrawal notice.
Now will the agreement end it, another question. Because the way it works, is the president clearly has authority, Congress has delegated it, to give notice to get out of NAFTA and the president could follow through, but it’s a six-month process.
So I suspect the notice to withdraw will be the proverbial two-by-four upside the head to say, hey we’re serious. But we’re not going to continue to have a $177 billion annual goods trade deficit with the NAFTA partners, brothers and sisters of the north and south. Therefore let us come up to something more balanced and if we can’t in six months, then we must say adios, adieu, goodbye. Hopefully we never get there. That is what I think the administration could do if they give notice.
Now on the other hand, if the other NAFTA countries start to engage at this negotiation happening in less than a month, maybe it won’t come to that two-by-four moment.
The next round of NAFTA negotiations will take place in Montreal in late January.
