As I am sure you know, the Clinton Administration at long last
launched its campaign to secure congressional ratification of the
North American Free Trade Agreement last September 14. Bill
Clinton, flanked by former Presidents Gerald Ford, Jimmy Carter,
and NAFTA architect George Bush, used the occasion of the signing
of the side accords on environmental and labor standards to kick
off his pro-NAFTA drive. Clinton's mission: convince the American
people and members of a dubious Congress that the free trade pact
with Canada and Mexico will create new U.S. jobs, expand exports,
and improve U.S. economic competitiveness.
However, the President and other NAFTA supporters are facing an
uphill struggle. In an effort to frustrate the pro-NAFTA enthusiasm
generated by the White House ceremony, House Majority Leader
Richard Gephardt announced last week that he would vote against the
agreement. Moreover, anti-NAFTA forces, led by Ross Perot, Patrick
Buchanan, Jesse Jackson, Ralph Nader, and a conglomeration of
radical labor and environmental groups, have made the defeat of the
NAFTA their top priority.
Despite their anti-NAFTA demagoguery, almost every independent
and U.S. government study shows that Perot and the other anti-NAFTA
leaders are dead wrong on the free trade pact. For example, it is
estimated that there will be a net increase of as many as 200,000
new jobs as a result of increased U.S. exports to Mexico under the
NAFTA. Today, trade with Mexico alone sustains at least 700,000
jobs in the U.S. Moreover, the NAFTA will help address many of the
other concerns raised by NAFTA critics. The agreement will
accelerate the rate of rising Mexican wages, it will address
environmental concerns along the border and inside Mexico, it will
help lock into place Mexican President Carlos Salinas de Gortari's
free market and democratic reform programs, and it will diminish
over time the flow of illegal immigrants and drugs crossing the
The bipartisan gathering of NAFTA defenders that convened at the
White House two weeks ago demonstrated that backing for the
agreement is not divided along party lines, but rather according to
two different economic visions. Those who favor the NAFTA view the
economy in global terms and believe that U.S. workers can compete
and win in the global marketplace. They are also convinced that
free and expanded trade benefits all Americans and that the U.S.
will greatly profit through agreements like the NAFTA. However,
opponents of the free trade accord tend to be inward-looking, favor
the status quo, and seem to fear competing with other countries.
They believe that opening U.S. markets to foreign goods greatly
harms U.S. workers and the economy. They also argue that U.S.
sovereignty and security will be threatened if the NAFTA goes
The bottom line is that the NAFTA is a win-win agreement for
America. Under the NAFTA, the U.S. will be eliminating an average 4
percent tariff on Mexican goods that is less than one-half as high
as the average 10 percent Mexican tariff on U.S. goods. In other
words, the free trade pact will make it easier to produce goods and
services in the U.S. and sell them to Mexico. As a result, once the
NAFTA is passed, there will be less of an incentive for American
companies to move south of the border in their effort to penetrate
the Mexican market. Moreover, Mexicans today purchase more U.S.
imports per capita than do much wealthier Japanese and Europeans,
thereby supporting American jobs. As Senator Bill Bradley, the
Democrat from New Jersey, stated in a recent editorial in The Wall
Street Journal: "Defeating NAFTA won't create jobs, control
immigration, or clean the environment. Either we address the
problems of economic transformation head on, or we bury our heads
in the sand, blame NAFTA for situations it did not create, and
accept a lower standard of living and a fraying social fabric....
NAFTA opens more than a trade door. It will enhance our nation in
ways that are absolutely critical to growth, progress, and security
in the 21st century."
The NAFTA almost certainly will prove to be President Clinton's
most critical foreign policy challenge of his first term. It also
will have far-reaching implications on his domestic policy agenda.
Unfortunately, the NAFTA's fate probably will not be decided by an
honest consideration of its costs and benefits. On that score, the
facts surrounding the agreement clearly do not support the myths
and allegations advanced by the agreement's opponents. To be sure,
NAFTA opponents are playing unfairly upon the fears of the American
people. As political commentator and economist Alan L. Keyes
recently put it, if the NAFTA is defeated, "It would not be the
first time in our history that a coalition of bad motives, bad
arguments, and bad feelings defeated a good idea." The fight for
the NAFTA, however, has only just begun. If NAFTA supporters and
the Clinton Administration challenge Perot with facts and hard data
-- while taking the message directly to the American people -- the
agreement will still likely pass the Congress.
The NAFTA's Impact on the U.S. Economy
Almost every independent study on the NAFTA predicts that there
will be a net gain in the number of U.S. jobs as a result of
expanded American exports to Mexico and new foreign investment in
the U.S. Since Mexico began to open its economy in 1986, the number
of American workers producing merchandise exports to Mexico has
risen from 274,000 to an estimated 700,000 last year. With NAFTA,
the non-partisan International Trade Commission (ITC) predicts that
200,000 more export-related jobs will be created by 1995. Moreover,
it is estimated that for every $1 billion more in exports, 22,800
jobs are created in the U.S. Just since 1986, American exports to
Mexico have exploded from $12.6 billion to $40.6 billion last year.
As U.S. exports to Mexico increase under the NAFTA, so too will the
U.S. job base. Moreover, Americans working in jobs related to
exports to Mexico make 12 percent more than the national
Even Clyde Prestowitz, the President of the Economic Strategy
Institute, a Washington-based think tank that once was strongly
against the NAFTA, now says that the pact should be ratified. Last
fall, Prestowitz claimed that the NAFTA would cost up to 222,000
U.S. jobs. Today, however, he argues that "NAFTA will be a plus in
the long run." His reasoning: Many U.S. companies will likely shut
down their operations in Mexico and return home once Mexico lowers
its trade barriers. If U.S. companies can penetrate the Mexican
market without confronting tariffs, one of the key rationales for
locating there in the first place disappears. Moreover, it is
likely that many U.S. corporations will move their Asian
manufacturing facilities to Mexico once NAFTA is enacted, making it
almost certain that they would import components from the U.S.,
thereby creating new U.S. jobs.
According to Gary Hufbauer and Jeffrey Schott, two well known
trade experts and authors of the book NAFTA: An Assessment, "If the
NAFTA is rejected, the U.S. is likely to experience job losses.
Rejection of the NAFTA would probably cause capital to leave
Mexico. The resulting slowed Mexican growth and a potential
devaluation of its currency would contract Mexico's imports and
expand its exports, thereby slashing the U.S. trade surplus with
Mexico." While Hufbauer's and Schott's job gains numbers are
slightly different from those predicted by the ITC or the Clinton
Administration, they still calculate that under the NAFTA, a gross
total of 316,000 U.S. jobs will be created, while only a gross
total of 145,000 U.S. jobs will be dislocated -- leading to a net
gain of 171,000 new jobs.
One of the myths that has been promoted by NAFTA opponents like
Ross Perot is that lower wages in Mexico will encourage U.S.
companies to relocate their plants and factories there. This
concern, however, has been greatly exaggerated. Since labor
represents only between 10 percent to 20 percent of production
costs for most businesses, it is unlikely that a company would
relocate to Mexico simply because its wages are lower than those in
the United States. If U.S. companies were going to move to Mexico,
they would already have done so because there is absolutely nothing
stopping them from relocating there today. Mexico has already
removed most of its restrictions on foreign investment and
ownership of manufacturing facilities. Moreover, wage levels in
Mexico are not nearly as low as many people believe and will rise
steadily under the NAFTA. Since 1987, it is estimated that Mexican
wages have risen by 28.7 percent. Rapidly increasing wage levels in
Mexico, combined with lower productivity levels, often erase much
of the wage advantage anyway.
U.S. workers earn high wages because they are the most
productive workers in the world. Perot, Buchanan, and other NAFTA
critics believe that Americans cannot meet the challenge of
international competition. Rather than harm it, the NAFTA will
enhance U.S. productivity, while increasing U.S. jobs and wages.
Meanwhile, a host of problems, ranging from the costs involved with
moving factories to Mexico, higher levels of worker absenteeism, a
lack of educational institutions, questionable political stability,
limited access to raw materials, long distance management, and
distance from the primary markets (U.S. cities), also run up
operating costs for U.S. firms doing business in Mexico.
Consequently, few companies base plant locations on a simple
calculation of wage differentials; for most U.S. manufacturers, the
cost of labor is less important than such factors as access to
technology, the skills of the local work force, and the quality of
the transportation network.
Compare Mexico with Puerto Rico, for example. Puerto Rico has
enjoyed free trade with the U.S. for decades. While a major gap
still separates manufacturing wages in the U.S. and Puerto Rico,
American jobs have not been negatively affected as a result of the
differential. Between 1970 and 1990, employment in Puerto Rico's
manufacturing sector only rose from 132,000 to 160,000 jobs, and
those jobs actually fell as a share of the total work force from
over 17 percent to under 15 percent. If low wages were such a
magnet for manufacturing activity, Puerto Rico should have gained
far more new jobs over the past two decades, and the proportion of
the labor force engaged in manufacturing activity should have
risen, not fallen. If cheap labor were the sole determinant of
plant sites, then Mr. Perot and other U.S. industrialists would be
relocating their factories to countries like Haiti and
Another smokescreen that NAFTA opponents often use is that the
agreement will destroy America's manufacturing base. If Mr. Perot
really believes this, then he should become an honorary member of
the Flat Earth Society!
To be sure, the NAFTA benefits the U.S. economy and
manufacturing base because it levels the playing field with Mexico
in terms of trade. As far as imports from Mexico are concerned, the
U.S. already practices free trade. The NAFTA will only make it more
of a two-way proposition. Mexico's average tariff barriers against
U.S. exports are 2.5 times higher than the equivalent U.S. tariff
against imports from Mexico. By contrast, over 50 percent of U.S.
imports from Mexico already enter duty-free. Moreover, complex
Mexican domestic licensing requirements further impede U.S. exports
to the Mexican market. The NAFTA, however, will eliminate these
tariff and non-tariff barriers.
Mexico is currently the America's third largest and fastest
growing export market. Only Canada and Japan purchase more U.S.
goods and services. In terms of manufactured exports, only Canada
buys more U.S. goods than Mexico. Since 1986, U.S. exports to
Mexico have increased by 228 percent to $40.6 billion -- 2.3 times
faster than U.S. exports to the rest of the world. It is estimated
that 70 cents of every dollar that Mexico spends on foreign
products is spent on U.S. goods.
The free trade agreement, therefore, is not part of the problem,
instead it is part of the solution of bolstering the U.S.
manufacturing base and the U.S. economy as a whole. The NAFTA will
create the world's largest market. By increasing export
opportunities, the free trade accord will enable the U.S. to take
advantage of its economic strengths, which include high-wage,
high-technology manufacturing. According to the September 10, 1993,
issue of The Kiplinger Washington Newsletter, "Under the NAFTA,
U.S. exports to Mexico will jump by 46 percent by 1995, reaching
$60 billion, compared with $41 billion last year. Six years ago the
figure stood at only $14.5 billion." This increase in trade, much
of which is in U.S. manufactured goods, undoubtedly will help
fortify -- not damage -- the U.S. economy.
As Mexico's economic growth accelerates as a result of NAFTA,
its demand for U.S. machinery, capital goods, consumer items, and
services will expand, thereby generating new American jobs. The
NAFTA will be the best possible vehicle to guarantee that U.S.
firms are in an opportune position to compete in Mexico's growing
market. Otherwise, countries like Japan and Germany will fill the
need. Mexico, for example, needs to buy billions of dollars worth
of equipment for its transportation, computer, and
telecommunications systems. Since over two-thirds of Mexico's
imports come from the United States, American industries that
produce these products and services will be the first beneficiaries
of a NAFTA.
The U.S. economy also will benefit from the NAFTA by integrating
high technology with Mexico's low-cost labor. Japan is already
doing this with China, Malaysia, the Philippines, and Singapore.
Western Europe is beginning to do it in the Czech Republic,
Hungary, Poland, and other Eastern European countries. U.S.
companies, including Zenith, General Electric, the Ford Motor
Company, Rockwell International Corp., AT&T, and many others
have been doing it to a limited extent in Mexico, even without the
In the long run, the NAFTA will help the United States compete
economically against European and Pacific Rim countries. U.S. "co-
production" arrangements with companies in Mexico -- in which U.S.
firms combine low labor costs, access to capital, and technology --
allow American firms to produce low-cost, quality products. And
isn't that the key to competitiveness?
About 84 percent of America's economic growth last year resulted
from an increase in U.S. exports. We simply cannot boost our
exports without freer trade. America can revive its economy and
remain the world's leading economic power only if it begins to use
the resources of its neighbors as well as its own.
Another fallacy about the free trade pact is that only certain
states will benefit from increased trade with Mexico. However, a
June 1993 study by The Heritage Foundation demonstrates that the
NAFTA will benefit the country as a whole, not just one or two
particular regions. According to the study, at least 40 of the
country's 50 governors support the agreement, with the others
remaining undecided. Their confidence in NAFTA stems from the fact
that most states have already seen sharp increases in exports to
Mexico over the last five years. The U.S. Department of Commerce
estimates that virtually every state in the nation has benefited
from increased trade with Mexico, with every region in the U.S.
posting large increases in exports to Mexico last year. According
to their figures, 31 states doubled their exports to Mexico, while
15 states tripled their exports. In fact, the industrial mid-west
-- home to such NAFTA opponents as Democrat Representatives David
Bonior of Michigan and Marcy Kaptur of Ohio -- posted a 90 percent
increase in exports to Mexico just since 1987. Examples: Illinois
saw a 417 percent increase; Wisconsin, a 247 percent increase;
Ohio, a 188 percent increase; Indiana, a 30 percent increase; and
Michigan, a 32 percent increase.
U.S. Economic Trends
Unfortunately, most of the debate about the NAFTA is not really
about the agreement itself and what it would do or not do to the
U.S. economy and jobs. It is basically about organized labor's
enormous grievances concerning things that have already happened or
that will happen to the economy regardless of another trade
agreement with Mexico. The debate is about the anxieties that
working people feel as corporations go through vast reorganizations
and layoffs to push efficiency up. As Labor Secretary Robert Reich
put it recently: "NAFTA is a very, very tiny element with regard to
a huge tide of change that is sweeping over America."
As you all know, it is the top bureaucrats in the union
establishment that are the chief fomenters of opposition to NAFTA.
They are supposedly concerned about the jobs American workers will
lose because of the agreement. Yet Alan Keyes notes that these same
bureaucrats have been in the forefront of moves to raise taxes,
increase burdensome regulations, and expand ineffective government-
dominated welfare programs: all policies that destroy jobs, sap
productivity, and greatly increase America's vulnerability to
Keyes also stresses that the labor bosses are less concerned
about the jobs they claim will be lost to the NAFTA, than they are
about the kinds of jobs the free trade pact will create. Expanded
trade with Mexico has produced hundreds of thousands of new jobs,
with many of these jobs being created in small and medium-sized
companies, where the labor force is less susceptible to traditional
union organizations. NAFTA will mean new jobs for Americans, but it
would not necessarily mean new support for the existing union
structure. Therefore, the real threat to the union bureaucrats is
not from foreigners who take jobs from Americans, but from
Americans who take jobs in less unionized sectors. The foreigners,
in this case Mexico and Canada, are used as scapegoats by the
anti-NAFTA xenophobes in the United States.
Since the U.S. economy is twenty times bigger than the Mexican
economy, it is ridiculous for NAFTA critics to predict that the
agreement will lead to as many as 5.9 million lost jobs and the
destruction of America's manufacturing base. Mexico simply isn't
capable of flooding the United States with cheap goods. To be sure,
the NAFTA will help promote economic growth, create jobs, and make
the United States more competitive. However, its immediate impact
on the U.S. economy, while positive, will be limited at best --
despite all of the positive numbers and data I have just given you.
What is important to keep in mind is that the NAFTA merely puts the
finishing touches on what is already basically an open trade
relationship between the Untied States and Mexico. It also will
help to sustain the growing trend of global economic
liberalization. The NAFTA, therefore, is only one step in building
a strong American economy.
Dangers of Defeating the NAFTA
While the implementation of the NAFTA will not be the salvation
of the U.S. economy and American interests, its defeat would indeed
have some very serious side effects. A rejection of the free trade
pact would give a blank check to unions, radical environmentalists,
and ultra-liberals on Capitol Hill that want to blame America for
the world's problems and frustrate U.S. business interests.
It also would take its toll on U.S. export growth and jobs.
Political forces in Mexico would almost certainly pressure the
Mexican government into retaliating by erecting new trade barriers
to U.S. goods. Therefore, many of the 700,000 jobs that currently
depend on trade with Mexico would be at risk. According to U.S.
Trade Representative Mickey Kantor, that number would rise to
900,000 by 1995 if the NAFTA is passed. However, it would drop to
500,000 if the NAFTA is rejected. In other words, a rejection of
the free trade pact could cost America 200,000 jobs, which would
hinder the U.S. economic recovery. Even more U.S. jobs would be
lost if other countries in Latin America also retreated to
protectionism as a reaction to a NAFTA defeat -- a scenario which
is completely plausible.
The death of the NAFTA also could lead to an unstable Mexico on
the U.S. southern border. Populist, nationalist, or anti-American
political forces in Mexico would almost certainly benefit from the
defeat of the NAFTA. If such groups came to power in Mexico,
cooperation in a number of areas -- ranging from drug interdiction
to border environmental clean-up to immigration control -- would be
Unfortunately, Members of the U.S. Congress, who hold the fate
of the NAFTA in their hands, often do not look at these factors
when analyzing the agreement. Their sole concern in getting
re-elected and protecting the jobs in their districts.
We have a choice to make. By passing the NAFTA, we can
demonstrate leadership in the global economy and prove that
Americans can compete. We can also boost our exports and create,
new and better paying jobs at home. We also will help foster closer
ties to our neighbors in the Americas and bolster their progress
towards open economies and stable democracies.
By rejecting the NAFTA, we will send a signal that we favor the
status quo and that we are an inward-looking nation. It will tell
the world that our leaders do not have the confidence in our
ability to compete and that free trade is a threat to our economy.
It will also destroy the United States' credibility as a trading
partner. A defeat for the NAFTA, to be sure, will be a defeat for
not only the U.S. corporations, but also for the U.S. worker and
the U.S. consumer. It will also be a defeat for America and the
The United States, Canada, and Mexico today are on the brink of
a new era in economic cooperation. Through the potential
ratification of the North American Free Trade Agreement, the three
countries are poised to greatly expand their commercial and
economic ties, thereby creating a more prosperous and competitive
North American economic community. The NAFTA will create a far more
predictable business environment and reduce risks for U.S.
companies doing business in Mexico. It also promises to build the
world's largest and wealthiest market with some 360 million people
and an economic output of over $6 trillion. Once approved, the free
trade pact will help improve the economic standing of American
industries that have suffered in recent years. By approving the
NAFTA, the U.S. Congress also could ensure that U.S.-Canada-Mexico
relations remain firmly on track, as well as help launch a free
trade and free market revolution throughout the rest of the
Americas, thereby creating even more new markets for U.S. exports.
If the NAFTA is defeated, however, U.S.-Mexico relations will
certainly sour. The United States may be faced with an unstable
country on its southern border, and a new wave of global
protectionism -- similar to that of the 1930s -- could once again