THE BLOG

NAFTA, Twenty Years After: A Disaster

01/01/2014 12:00 pm ET | Updated Mar 03, 2014
  • Jeff Faux Jeff Faux, author of The Servant Economy

New Year's Day, 2014, marks the 20th anniversary of the North American Free Trade Agreement (NAFTA). The Agreement created a common market for goods, services and investment capital with Canada and Mexico. And it opened the door through which American workers were shoved, unprepared, into a brutal global competition for jobs that has cut their living standards and is destroying their future.

NAFTA's birth was bi-partisan -- conceived by Ronald Reagan, negotiated by George Bush I, and pushed through the US Congress by Bill Clinton in alliance with Congressional Republicans and corporate lobbyists.

Clinton and his collaborators promised that the deal would bring "good-paying American jobs," a rising trade surplus with Mexico, and a dramatic reduction in illegal immigration. Instead, NAFTA directly cost the U.S. a net loss of 700,000 jobs. The surplus with Mexico turned into a chronic deficit. And the economic dislocation in Mexico increased the the flow of undocumented workers into the U.S.

Nevertheless, Clinton and his Republican successor, George Bush II, then used the NAFTA template to design the World Trade Organization, more than a dozen bilateral trade treaties, and the deal that opened the American market to China -- which alone has cost the U.S. another net 2.7 million jobs. The result has been 20 years of relentless outsourcing of jobs and technology.

By any measure, NAFTA and its sequels has been a major contributor to the rising inequality of incomes and wealth that Barack Obama bemoans in his speeches. Yet today -- channeling Reagan, the Bushes and Clinton -- the president proposes two more such trade deals: the Trans-Pacific Partnership with eleven Pacific Rim countries and a free trade agreement with Europe.

Like his predecessors, he repeats the mantra that more such trade deals will create "millions of American jobs" because we excel at high technology. But today the U.S. surplus in hi-tech industries has turned into a deficit -- including a deficit with China. In the global trade system initiated by NAFTA, any job that can be done with a computer can be out-sourced, unless American workers are willing to work at the wages of Mexico, India or China.

That trade system has not delivered the promised benefits because it was designed not to. The agreements traded away the interests of American workers in favor of the interests of American corporations eager to produce for the U.S. market in countries where labor is cheap, environment and public health regulations weak, and governments easily bribable. NAFTA's fundamental purpose was not to free trade, it was to free multinational corporations from public regulation in the U.S., Mexico, Canada, and eventually all over the world.

Among other things, NAFTA granted corporations extraordinary legal protections against national labor and environmental laws that that they could claim threatened future profits. At the same time, workers and unions were denied the legal status needed to defend themselves in these new cross-border jurisdictions.

As a result, the bargaining positions of U.S. workers -- union and non-union -- were severely undercut. As soon as NAFTA became law, corporate managers began using the threat to move elsewhere in order to force U.S. workers to work longer and harder for less. Threatening employees with outsourcing is now standard practice in American business.

It is not just workers in export and import industries who have suffered. Labor markets are connected. When autoworkers and steelworkers are hired for $14 instead of $20 an hour, lower wages ripple into the paychecks of those who work for suppliers, construction contractors, restaurants, and retail stores.

Nor is it just American workers who have taken the hit. Historically high Canadian wages also have been undercut. In Mexico, although some new jobs are created when production is shifted south of the border, the lack of worker protections in NAFTA insured that corporate investors would reap most of the benefits. The gap between U.S. and Mexican wages remains as wide as it was twenty years ago. In the even poorer countries, unregulated global trade has led to the ruthless exploitation of labor -- from teenagers in the sweat shops of Bangladesh to eight year olds working in the gold mines of Tanzania.

Promoters of NAFTA-style globalization paint the opposition as "protectionists." This is demagoguery. The issue is not trade with other nations. It is trade policies. For 200 years US trade policies balanced imports and exports, and the interests of workers and investors. Job losses in one sector were matched by job gains in others. So if a company replaced workers with machines, the increased profits were re-invested in other parts of the domestic economy.

But after NAFTA, companies were encouraged to re-invest -- and create the new jobs -- overseas. As a result, the more trade expands, the more jobs are outsourced.

According to the president, the fault lies not in de-regulated trade, but in American workers' lack of competitive skills. There is little evidence that the problem is lack of American skills. But if the president really believed it, he would hold off on more trade deals until U.S. workers were sufficiently re-trained and re-educated to compete without lowering their wages.

Given this dismal history, why would a smart "liberal" Democratic president who says he cares about the middle class continue to plunge ahead with more NAFTA-type trade de-regulation? One explanation is that providing more access to the U.S. market for other countries is a way of shoring up the fading influence of the U.S. political class in world politics. Another is that Democratic leaders have joined their Republican leaders in Corporate America's deep pockets.

Whatever the reason, the 20th anniversary of NAFTA stands as a grim reminder of how little our political leaders and TV talking heads -- despite their crocodile tears over jobs and inequality -- really care about the average American who must work for a living.