The International Trade in Jobs and Workers

It is an article of faith among most economists and businessmen that barriers to trade between nations create inefficiencies and lower standards of living.[1] What kinds of barriers to trade exist? Tariffs are taxes on imported goods that raise the sales price to a level that makes the import uncompetitive with a domestic product. Government subsidies (payments) to domestic producers of some goods allow them to hold down prices compared to imports. Government regulations and standards for goods which vary from one country to another can force adaptation costs onto foreign producers, thus raising the price of their goods to a point where it isn’t worth the trouble to sell in a foreign market. The effect of these barriers is to reduce competition, efficiency, and specialization, while raising the cost of living for consumers.

So, trade barriers are bad. In 1994 businessmen won passage of the international treaty called the North American Free Trade Agreement (NAFTA). This treaty abolished tariffs and other barriers to trade on 70 percent of the goods produced and consumed in Mexico, the United States, and Canada. What is the up-side of this agreement? Trade between Mexico and the US tripled during the decade and a half after passage of the treaty; Canadian exports also tripled. What is the down-side of the agreement? Wages haven’t gone up in either Mexico or the US.

In the United States the response to NAFTA is ambivalent. The normal line of development in an advanced economy is that low-wage foreign competitors in low-skill sectors take jobs from the advanced economy, while the advanced economy creates jobs in high-skill and high-wage sectors. That is one of the things that seem to be happening in the United States. By 2008, three million American manufacturing jobs had been lost since the passage of NAFTA. This doesn’t count the many more jobs lost during the “Great Recession.” On the other hand, more jobs were created in those years than in the fourteen years before passage of the treaty. Similarly, highly-mechanized North American farming is far more productive and cheaper than is much Mexican farming, so agricultural exports to Mexico have also greatly increased. However, neither American politicians nor American media have been very good about pointing out the realities of the situation. Job-loss and displacement normally gets a lot more media attention than does job creation. “If it bleeds, it leads.” Those three million manufacturing jobs that went up in smoke since 1994? Mostly they went to China and India, not to Mexico.

In Mexico the response has been profoundly hostile. Mexicans dislike NAFTA by about two-to-one. Why is that? About forty percent of Mexicans still live in poverty. Small and inefficient Mexican farms have been unable to compete with low-cost imports from North America, so many Mexican farmers have been driven to the wall. There was been a huge increase in illegal immigration to the United States, until the “Great Recession” hit. Eight million of the twelve million Mexican illegal immigrants in the United States have come since the passage of NAFTA. Is NAFTA solely or even principally to blame for the flood of illegal immigrants? Not necessarily. One Mexican observer argues that the upper classes have creamed off all the rewards of expanded trade. This has kept the benefits of increased trade from flowing downward in society through higher taxes on the well-off, better services for ordinary people, and higher wages for most workers.

This raises the possibility that the Mexican upper-class is intentionally exporting much of its population to the United States in order to defend an inequitable social order at home.

[1] “Coming to terms with NAFTA,” The Week, 30 May 2008, p. 13.

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