Thursday, April 19, 2007

NAFTA's shop-floor impact

Ten years later, the trade deal costs some US jobs but buoys trade and efficiency.
| Staff writer of The Christian Science Monitor
Inside the spotless Caterpillar plant, men and women quickly take apart used fuel injectors, identify those that can be recycled, and then retrofit them with new parts.

The goal, says plant manager Walt Mazzei, is to do it so well that no one can tell the difference between new and remanufactured - except in price. Listen for a few minutes, and it's impossible to miss Mr. Mazzei's pride in this factory - one of several thousand maquiladoras along the border, which rely on Mexican labor and foreign ownership.

He has reason. Profits at the lean manufacturing plant are growing 20 percent a year. Mazzei credits the plant's workers, who he says can go "toe to toe with any in the US." He pays them about $5 an hour, a quarter of the typical pay in the United States.

Now, on the eve of the 10th anniversary of the North American Free Trade Agreement, many experts say the treaty has cost US jobs, just as critics feared it would. But competition in manufacturing now comes increasingly from 50-cent-an-hour Chinese workers. For this and other reasons, the reality of the deal between the US, Mexico, and Canada is more nuanced than foes or boosters allow.

Yes, US jobs have been lost. But the "giant sucking sound" famously predicted by presidential candidate Ross Perot in 1992 has arguably been more of a whimper. Nor has it created enough jobs in Mexico to stem illegal immigration, as others predicted.

What it has accomplished, without dispute, is increase trade. Commerce between the US and Mexico has nearly tripled in a decade, growing twice as fast as US trade with the rest of the world.

"This increased trade has brought cheaper products and allowed US manufacturers to remain competitive in the world market," says Jorge Gonzalez, chairman of the economics department at Trinity University in San Antonio. "And that is exactly what it was supposed to do. Trade is not an engine for jobs, it's an engine for efficiency."

Most economists do not deny that NAFTA has displaced American workers and devastated entire towns - even as the US economy has added about 2 million jobs a year since 1990. It's evident from the job-training centers in southern Texas to the "NAFTA ghost towns" of North Carolina, with their shuttered textile plants.

The US Department of Labor calculates that about 500,000 jobs - mostly in manufacturing - have been lost to Canada or Mexico since NAFTA was enacted Jan. 1, 1994. Some claim that number is even higher. Robert Scott at the Economic Policy Institute in Washington, for example calculates it at 766,000.

But others say the benefits of NAFTA are unseen. Regardless of how one felt about it during the raucous debates a decade ago, NAFTA's primary benefit for Americans was clear: cheap labor. And today 3,182 plants dot Mexico's countryside.

And as prices for certain goods drop as a result, Americans have more money to spend on other things, thus stimulating the economy. In addition, some workers whose jobs go south are able to retrain for higher-skilled, higher-paid jobs. As Dan Griswold at the Cato Institute's Center for Trade Policy Studies in Washington says, "Trade is not about more jobs or fewer jobs; it's about better jobs, and NAFTA is no exception."

Trade, according to economic theory, allows countries to use their resources more effectively by reducing production in the areas where they are less efficient and increasing it where they are more efficient. This increases the standard of living for everyone, says Dr. Gonzalez. "We've basically taken two economies with vastly different resources and integrated them," he says. "That helps the whole region become more competitive."

But there is still much to be done if NAFTA is to be a success, analysts say. Issues of trucking, immigration, environment, and tariffs on certain agricultural products remain unresolved 10 years later.

In addition, increased competition from China has forced many Mexican maquiladoras to shut their doors. In fact, the number of maquiladoras here has dropped to 1999 levels - in part because of the downturn in the US economy, but also due to the lure of even cheaper labor elsewhere.

That has changed the face of NAFTA workers.Leaning on a massive length of steel, Jim Jackson motions to Mexican engineers studying blueprints at the Cives Steel Plant - one of hundreds of maquiladoras in Nuevo Laredo.

It's highly technical work - raw steel beams are fabricated for building projects in the US - so a third of all workers here have engineering backgrounds, says Mr. Jackson, the plant's general manger. "This is a custom-job shop. Employees have to be able to read and interpret blueprints."

This isn't the assembly-line factory that springs to mind when one hears the word maquiladora. These are skilled workers. Indeed, as more US companies move their unskilled, production-line jobs to Asia, Mexico is being forced in a new direction.

In fact, many economists agree that NAFTA has played a role in helping turn the Mexican economy from a model of centralized protection to decentralized, democratic capitalism. Closely tied to the US economy, it now has one of the most stable and dynamic economies in volatile Latin America.

And that has prompted steady political reform, says Russell Roberts, a professor of economics at George Mason University in Fairfax, Va. "The bottom line is this: NAFTA has caused hardship for some Americans in certain sectors, but it's made for a more stable and integrated Mexican political system - and that's a real good thing for the world."