The NAFTA Dilemma

There is much animosity towards NAFTA across the country. The fact is that NAFTA is disliked in México as well by many people in the United States. El Paso is no different. The unfortunate fact is that the dislike of NAFTA is driven by vocal groups in both countries. I believe that the vocal voices against NAFTA are a minority. Donald Trump has promised to renegotiate or do away with NAFTA. But, the sad fact is that the NAFTA narrative is negative because only the negative voices are driving the discussion.

It is true that NAFTA resulted in job losses. This is true for the United States and for Mexican workers. The job losses are the result of the reallocation of production from single-source manufacturers to a global-driven just-on-time inventory using supply chains from many parts of the world. Basically, NAFTA, like many of the other trade agreements across the globe, makes use of different strengths in certain countries bringing together the end products to the consumers. Obviously, the global economy is of little interest to those struggling to get a job or looking for greater wages. There are also the environmental concerns.

The problem is that the global economy is here to stay. Much to the chagrin of those that advocate returning jobs to the country, either México or the United States, they do not understand that those jobs will not be coming back. It is a simple case of economics. Consumers want to pay the least possible amount for their consumables, while workers want to earn the most money possible.

The two dynamics oppose each other and thus neither side can have what they want.

Black markets exist because consumers will always pay the least amount they must. If a consumable is expensive or unavailable in their area, the consumer will find a way to buy it anyway. In many ways, free trade agreements allow for better wages and cheaper products.

But this discussion is not being had. The narrative is that México is benefiting from NAFTA while the United States suffers. There is also the other narrative that Mexican wage earners are being taken advantage of or that the environment is suffering.

NAFTA and free trade are very complex issues because it is not just about labor costs or manufacturing jobs. It is not just about US workers losing and Mexican workers gaining. Each country’s workers suffered because of the readjustment of productions lines due to NAFTA. Mexican corn farmers saw their corn farms disappear. U.S. manufacturing workers saw their jobs move to México.

But what hasn’t been discussed is that these same workers also benefited from NAFTA. U.S. workers today can purchase big-screen televisions for under $1,000 because of NAFTA. Mexican workers no longer must buy consumables in black markets. BMW’s and avocados cross the borders seamlessly at lower prices than before NAFTA.

The question then becomes, do the benefits outweigh the drawbacks?

Let’s look at El Paso. Prior to NAFTA, the largest and most significant industry was the garment industry. Advocates and decriers of the garment job losses in El Paso forget an important reason of why El Paso was the leading garment manufacturing destination for the country prior to NAFTA. It was because of low wages. Low wages are the reason the jobs left El Paso and moved to México shortly after NAFTA was implemented. Almost fifty percent of the job losses in Texas, from the launch of NAFTA through 2014, can be tied directly to NAFTA. Most of the job losses were in the border cities. This per the Dallas Federal Reserve.

But that is only one-side of the very complex narrative.

As jobs left Texas, México benefitted is the obvious result. However, the Dallas Federal Reserve, which extensively studies the effects of NAFTA, has demonstrated that for every 10% increase in Mexican jobs there is a correlating increase in jobs in the United States. El Paso sees an estimated increase of about 2.8% in jobs for every 10% in México because of NAFTA. McAllen sees a 6.6% job increase while Brownsville only sees a 2.2%, while Laredo sees a 4.6% job increase.

Many tend to not believe these results instead relying on the negative narrative about NAFTA. Yet, the unemployment rate speaks for itself. For over a decade, El Paso’s unemployment rate was over ten percent up until NAFTA came to be. This is when the garment industry was at its highest peak. In 1994, when NAFTA was launched, the unemployment rate in El Paso was about 12%. Today, El Paso’s unemployment rate hovers around 5%.

NAFTA has been blamed for the losses in garment manufacturing jobs in El Paso. However, other manufacturing jobs filled the void. For example, the plastics industry established a significant presence in El Paso, until, it too left for México. Yet, the unemployment rate remains around five percent, notwithstanding the attacks on NAFTA as a job killer.

In 2015, El Paso was the 11th largest exporter of consumables out of 388 metro areas. That same year, about $98 billion (as in B) in products crossed through El Paso on their way to US consumers.

Clearly, NAFTA has had a significant impact on El Paso and it has been positive.

Donald Trump has argued that he wants to renegotiate NAFTA or that he wants to end it. Many in both countries are rejoicing at that possibility. Especially in El Paso.

However, will ending NAFTA really be a good thing for the country? For El Paso?

The numbers speak for themselves and they clearly show that ending NAFTA would be detrimental for both the United States and especially border cities, like El Paso.

In the coming week, I’ll be starting a NAFTA series laying out, with facts, why the NAFTA agreement cannot be ended without some serious ramifications for U.S. consumers and workers alike.