You Decide

… that NAFTA has helped expand the gap between the rich and the poor and hurts laborers in each country?

Although tax structure and collections in each country play a significant role in income gaps, some experts argue that NAFTA’s difficult-to-enforce labor standards have assisted in the erosion of stable working-class jobs in all three countries. NAFTA, they posit, makes it easier for companies in Canada and the United States to open up factories in Mexico and then paves the way for companies to bypass Mexico’s own labor regulations. Under NAFTA, labor complaints are handled by arbitration, which is a lengthy process and one that has been accused of subservience to the diplomatic relationships between all three members. Without rules that allow workers to, say, sue their employers for not paying them or for running businesses in which it is dangerous to work, workers are stripped of the leverage that helps them to either move out of poverty or hang on to their middle-class status. 

In the United States, the top 1 percent of the population now has the largest share of total national income since the years before the Great Depression, whereas the income of the other 90  percent continues to fall. Former foreign secretary for Mexico Jorge Castañeda described NAFTA as “an accord among magnates and potentates: an agreement for the rich and powerful… effectively excluding ordinary people in all three societies."

In Mexico, NAFTA created impressive profit-making opportunities for people in the top echelons of that country’s economy. In many cases, companies due to be privatized under NAFTA’s rules were purchased for far less than their actual value by well-to-do Mexicans who had cash to invest and the connections to get in on the deal-making. The companies were then resold at impressive profits — in one example, a government-run bank was sold for $3.3 billion, then resold to Citigroup for almost four times that. The bank was theoretically owned by all citizens of Mexico, but only those Mexicans who had money and connections profited from its sale.

Meanwhile, opportunities for working-class Mexicans have been decidedly less spectacular. Despite the investment that flooded into manufacturing along the U.S.-Mexican border, the real value of the minimum wage in Mexico has dropped by 18 percent. For every job created by manufacturing, two jobs were lost in agriculture. The cost of food continues to rise. Today in Mexico, 14 years after NAFTA went into effect, remittances (money sent back to Mexican citizens by relatives living in the United States) outrank both agricultural and manufacturing exports as sources of foreign revenue.  

And in Canada in the years since NAFTA went into effect, Canadians in the lowest 20th percentile in terms of income have seen their incomes fall by 7.6 percent, whereas those in the uppermost 20th percentile have seen a rise of 16.8 percent.

How can NAFTA be called good policy when it just makes rich people richer and poor people poorer? 

… that overall, NAFTA has boosted the economies of all countries involved?

From 1993 to 2005, trade among the NAFTA nations climbed 173 percent, from $297 billion to $810 billion. Mexico’s exports to the United States have quintupled, and its economy has grown by 40 percent even when inflation is taken into account. Canada and the United States have grown even more than Mexico has in terms of financial power. Trade now accounts for 27 percent of annual American economic output, compared with around 20 percent in 1993. Overall, U.S. exports to nations with whom it has struck agreements similar to NAFTA, like Singapore and Australia, have grown far faster than its exports to the rest of the world.

For example, the automobile industry has become highly integrated throughout the three countries, with parts moving back and forth across the Canadian, Mexican and U.S. borders. Under the theory of “comparative advantage,” this is a highly desirable outcome, as each country moves toward a greater degree of specialization, with, say, specialists in car upholstery located in one country, expert welders in another and engineers who draw up plans in yet another. Each group then relies on, rather than competes against, each other.

Even NAFTA’s negative effects have benefits for other sectors. Farmers displaced by troubles in Mexico’s agricultural sector have become an underpaid, but vital part of California’s agricultural sector, especially in labor-intensive areas like organic farming. Meanwhile, Social Security and Medicaid coffers have in fact profited because illegal workers’ wages are docked to pay into benefits they don’t use.

To those economists who see trade blocs as a welcome development, the increasing economic interdependence between Canada, Mexico and the United States (and, now, Central America and the Dominican Republic as well) has preserved these countries’ economic stability in the face of such ever-expanding behemoths as the European Union.