The Impact of NAFTA on American Business Interests

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The Impact of NAFTA on American Business Interests

The North American Free Trade Agreement (NFTA) is an import/export agreement between the governments of the United States of America, the United Mexican States and Canada designed to “remove most barriers to trade and investment” among nation [http://www.fas.usda.gov/itp/policy/nafta/nafte.html, July, 2001]. The agreement was implemented on January 1, 1994 effectively eliminating all non-tariff barriers to agricultural trade between the USA and Mexico. The foundational objectives of NAFTA include creating an expanded and secure market for the goods and services of each nation, improving working conditions and living standards in each nation, creating new employment opportunities, and enhancing basic worker rights [http://www.the-tech.mit.edu/Bulletins/Nafta/00.preamble, January 1994].

After seven years of operating under the guidelines of NAFTA, there are mixed reports relative to its success within the United States economy and the American business environment. The United States government tends to praise the success of NAFTA while American working people typically believe “NAFTA has thus far largely failed” and in fact has had a negative impact on many businesses [http://www.epinet.org/briefingpapers/nafta01, April, 2001].

The United States Government’s Claim for Success

According to the United States Department of Agriculture (USDA) and the Foreign Agriculture Service (FAS), the markets created by the implementation of NAFTA have been “one of the brightest spots” for farmers, agricultural exporters and the industries that support them, claiming that more than 25% of all agriculture exports are purchased by NAFTA nations [http://www.fas.usda.gov/itp/policy/nafta/nafta_backgrounder.htm, July, 2001]. Since the implementation of NAFTA, agricultural trade between the US and Mexico has increased by 55% accounting for more than 11.5 million dollars if business. The agricultural trade between Canada and the US also recorded increases of nearly 50% and more the 13 billion dollars of revenue.

Opponents of NAFTA point to the increased US import activities as a serious downfall of NAFTA’s original promise of creating an expanded and secure market for the goods and services of each nations. The government argues that NAFTA merely an assures of a free market society which has always been a foundational element of capitalism and a pillar of American business success. The government also argues that many of the “expanded” US exports opportunities would have been lost without NAFTA. In addition, the government indicates that increased import competition should be expected and in fact will have a positive effect on the US economy. As trade barriers are eliminated, trading becomes subject to open market conditions. Since the US is the largest of the NAFTA nations and has a strong and vibrant economy, it should not come as a surprise that US imports have increased. The increased imports provide the American consumer a broader array of competitively priced, high-quality products [http://www.fas.usda.gov/itp/policy/nafta/nafta_backgrounder.htm, July, 2001].

The government points to rapid increases in total employment across almost every aspect of American business and industry between 1994 and 2000 as evidence of NAFTA’s success outside of the domain of agriculture. In addition, the cheaper labor and production costs have been a great benefit to investors and financiers in most industries who are searching to increase profit margins and return of investments. The government sites the rise of the stock market over the 10,000 plateau and the prevailing strength of the US economy over the past seven years as undisputable evidence of the overwhelming success of NAFTA within the US.

The American Worker’s Claim for Failure

The greatest negative impact associated with NAFTA has been on the average American worker whose demographics suggest they are not investors. They have less than a college education and work for living, relying on a weekly paycheck to put food on the table. These people have not felt the positive affects realized by investors because they are not investors – they are the labor. As these investors invest in cheaper labor markets in Mexico and Canada, the US labor force is being forced to work for lesser wages and in many cases, move to the competing country or loose their weekly paycheck. The American labor force claims that this negative impact is in direct opposition to the original pomise that NAFTA would improve working conditions and living standards in each nation. The average American worker seems to believe that NAFTA improves working conditions and living standards in Mexico and Canada, but has the inverse effect in the US.

According to Robert Scott, “all 50 states and the District of Columbia have experienced a net loss of jobs under NAFTA” [http://www.epinet.org/briefingpapers/nafta01/impactstates.html, April, 2001]. It is estimated that the loss of actual or potential jobs within the US during the past seven years has surpassed three quarter million. The states with the most job losses include California, Michigan, New York, Texas and Ohio. These states account for over 250,000 of the actual or potential lost jobs

The hardest hit industries by the advent of NAFTA are manufacturing, automotive, textile, apparel and lumber. The service sector has also experienced job reduction due to NAFTA in the areas of legal, accounting and data processing. As industry moved its production to Mexico and Canada in an attempt to find cheaper labor and lower production cost, it also moved the service sector jobs associated with that production.

As these manufacturing and service jobs move to Mexico and Canada, there has been a growing income inequality and declining wages among production workers. Opponents of NAFTA claim the growth in trade deficits since its implementation has put downward pressure on the wages of non-college educated workers thus increasing the income gap between the upper and middle classes in the US. In addition, opponents claim that the increase in displaced workers due to loss of manufacturing and service jobs has resulted in lower than average wages for all US workers. This, they claim, is a result of competing for new jobs in fields where wages are already reduced. Finally, these opponents suggest that the threats by employers to relocate jobs, outsource operations and/or purchase goods from foreign sources has effectively reduced the collective bargaining power of US workers.

While it is clear that both the government and industry have convincing arguments, the truth of success or failure of NAFTA seems to be predicated on which sector of the economy is the focus. Agriculture, finance, and investment are clearly winners of the NAFTA policies. This in turn, has had an immediate and positive impact on import/export activities of the US. However, this increase in import/export activities has had the opposite effect on many American workers, resulting in lost jobs, reduced, wages and lowered standard of living. In the end, it would appear that NAFTA benefits a minority of Americans who possess the majority of wealth and negatively impacts the majority of Americans who possess the minority of wealth.



Sources:

Jeff Faux, (April, 2001). NAFTA at seven, [File posted on the World Wide Web]. Retrieved October 21, 2001 from the World Wide Web: http://www.epinet.org/briefingpapers/nafta01

Robert Scott, (April, 2001). NAFTA’s impact on the states [File posted on the World Wide Web]. Retrieved October 22, 2001 from the World Wide Web: http://www.epinet.org/briefingpapers/nafta01/impactstates.html

The benefits of nafta, (July, 2001) [File posted on the World Wide Web]. Retrieved October 22, 2001 from the World Wide Web http://www.fas.usda.gov/itp/policy/nafta/nafta_backgrounder.htm

The north american free trade agreement (NFTA), (January, 1994) [File posted on the World Wide Web]. Retrieved October 22, 2001 from the World Wide Web:http://www.the-tech.mit.edu/Bulletins/Nafta/00.preamble

The north american free trade agreement (NFTA), (July , 2001) [File posted on the World Wide Web]. Retrieved October 22, 2001 from the World Wide Web: http://www.fas.usda.gov/itp/policy/nafta/nafta.html

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