NAFTA And The Economy A Prepassage Debate

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NAFTA And The EconomyA Pre-passage Debate
NAFTA STINKS
DOES NOT!
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NAFTA And The EconomyA Pre-passage Debate
THE PRO POSITION - Gary Hufbauer Jeffrey Scott
From - Prescription for Growth in Foreign
Policy (Winter 1993/1994)
PRO
The Con Position - Jeff FauxFrom - The NAFTA
Illusion in Challenge (July 1993)
CON
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THE PRO POSITION
PRO
The argument against NAFTA has little to do with
NAFTA. It stems from a disease called
Emporiophobia
The
FEAR
of trade !
In fact, the 1989 U.S./Canada Free Trade
Agreement was blamed for causing a host of
economic ills.
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THE PRO POSITION
PRO
The disease causes two delusions

• NAFTA will depress U.S. employment and wages

• NAFTA will shift large sums of investment
  capital from the U.S. to Mexico

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THE PRO POSITION
PRO
The effects are exaggerated

• Since the U.S. is a 6 trillion economy, the
  overall trade and employment effects will be
  small relative to the total trade and employment.
  Trade with Mexico is only 7 of total U.S. trade

• Trade is projected to grow in both countries.

Ross Perots great sucking sound ignores the
stimulative effect of larger Mexican payrolls and
more spending on U.S. exports.
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THE PRO POSITION
PRO
Hufbauer Schott Project

• 320,000 new jobs will be created in the U.S.
  because of NAFTA.

• They also project that 150,000 workers in the
  U.S. will be displaced by NAFTA.

• Thus there will be a net increase of 170,000
  jobs which is small relative to a LF of 125
  million.

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THE PRO POSITION
Remember !!!
We should not confuse job loss from Technical
change with job loss from NAFTA.
PRO
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THE PRO POSITION
WE MAINTAIN
PRO
That labor costs in the U.S. are not far from
those in Mexico!
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THE PRO POSITION
Look at the following
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THE PRO POSITION
But now look at this
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THE PRO POSITION
If you recall basic econ, Its MB/P thats
important or in this case MP/W
Theyre almost the same! That really does
support the pro position. Both U.S. Wages and
Productivity are 8 x Mexicos
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THE PRO POSITION
PRO
The Capital Flight Claim is Unfounded

• Investment decisions are made on the basis of a
  strong environment not on a trade agreement.

• The Mexican economy is projected to grow with or
  without NAFTA. Investment will follow this
  development.

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THE CON POSITION

• Jobs will be lost

• Community tax revenues will shrink

• Wages will be reduced

• Environmental standards will be undermined

CON
The main impact will be on those in the bottom
2/3 of family incomes and will increase urban and
rural poverty.
WHY NAFTA ? Given the costs, why do it? If it
aint broke, dont fix it!
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THE CON POSITION
The evidence does not support the claim that more
jobs will be created than lost.
CON

• The gains claimed by H/S have already been
  achieved without NAFTA. The evidence shows the
  net gain more on the order of 25,000 not 170,000.

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THE CON POSITION
Items You Wont Find in the H/S Study

• The original manuscript of H/S projected a LOSS
  in jobs long term !

• Other Reputable scholars have estimated job
  losses of 500,000 to 1 million !

• H/S claim that new jobs in the U.S. will be
  higher pay jobs. Professor E. Leamer at
  U.Calif. Estimates a 1,000 loss in wages for
  70 of the LF.

• Prof. Shaiken, U.Calif., shows in a growing
  of Industries Mexican productivity is equal to
  U.S. productivity --

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THE CON POSITION
If this evidence is correct, then with high
Mexican productivity and wages kept politically
low, the ratio MP/W will rise in Mexico relative
to the U.S. and jobs and capital will flow like
the great sucking sound.
CON
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THE CON POSITION
And what about the farm sector?
Mexican farmers cannot compete with the large
export capacity farms of the U.S. This will
cause social disruption in Mexico and under cut
the anticipated consumer growth touted by H/S.
CON
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THE CON POSITION
FINALLY
It is estimated that the long term benefits of
NAFTA will yield an efficiency of a 2 billion
increase/year in production of consumer goods to
the U.S. Through lower prices - thats about
8/year for the average American.
THATS IT !! THATS ALL TO EXPECT.
Could it be that the whole issue of NAFTA is
political --- i.e. a mechanism to keep the
friendly Mexican government in power?
CON
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What do you thinK ?