Some old myths never seem to die. This is certainly true of the latest accusations being cast at the North American Free Trade Agreement (NAFTA).

Habitual NAFTA critics Pat Buchanan and Public Citizen are back in attack mode, this time using the recent U.S. visit by Mexican President Ernesto Zedillo and Mexico’s economic difficulties to charge that NAFTA is wrecking havoc on U.S. jobs.

Fortunately, a more objective look at the facts shows these attacks to be as far off the mark as ever.

Myth #1: After nearly two years, NAFTA is a proven failure.

Reality: NAFTA continues to deliver, on jobs and more.

U.S./Mexico trade grew at a record rate in NAFTA’s first year, jumping more than 20% to reach $100 billion in 1994. According to the U.S. Department of Commerce, $10 billion in new sales were made to each nation’s market, and total U.S. jobs from trade with Mexico grew to more than 800,000.

This year, U.S. export growth has been dampened by Mexico’s financial crisis. What NAFTA critics don’t say is that U.S. exports to Mexico are still higher than pre-NAFTA levels, despite a 7% decline in Mexico’s GDP for the first half of 1995.

It is also important to remember that NAFTA is a long-term instrument, reducing tariffs and other trade barriers over 15 years. Judging it based on short-term shifts in the business cycle, or Mexico’s economic downturn, is premature.

Moreover, NAFTA isn’t just about opening new U.S. export markets. It’s also about encouraging increased partnerships among North American businesses. NAFTA’s success here is clear -- evidenced by the steady growth in U.S./Mexico joint ventures and intermediate good imports by Mexico for use in production partnerships with U.S. firms.

Why is this important for U.S. jobs? Because, says the U.S. International Trade Commission, U.S./Mexico production sharing is a key strategy for countering stiff competition in trade from Asia and Europe, and keeping more U.S. jobs and business at home instead of migrating overseas.

Myth #2: U.S. benefits from NAFTA went down the drain with the peso crisis.

Reality: NAFTA is helping ease the crisis and secure U.S. trade gains.

NAFTA didn’t cause the crisis. That was more a product of financial miscalculations in Mexico. But NAFTA is helping to solve it.

Without NAFTA, Mexico could have shut its doors to U.S. goods, as it did after the 1982 debt crisis. Then, U.S. exports plummeted 50% and didn’t recover for six years. Had that happened today, hundreds of thousands of U.S. jobs would have been at risk.

NAFTA has legally obliged Mexico to maintain its open markets with the United States. As a result, the impact of the crisis on U.S. exports and jobs has been relatively modest. This is backed up by trade figures and U.S. Department of Labor data, which shows no appreciable rise this year in the rate of applicants for its NAFTA Training and Technical Assistance program (NAFTA-TAA).

NAFTA is also helping Mexico hasten its recovery by growing its own exports. Mexico’s 33.3% export rise and only 7.7% import drop during the first 9 months of this year is correcting its large trade imbalance. A return to economic health will restore Mexico’s demand for U.S. goods and the balanced trade of NAFTA’s first year.

Myth #3: Mexico’s trade surplus will cost more than 300,000 U.S. jobs.

Reality: The facts show U.S. job dislocation from Mexico trade is only 21,000.

The most far-fetched charge is that Mexico’s new trade surplus could cost 340,000 U.S. jobs. To arrive at this, critics take the formula economists use to project job growth from exports -- every $1 billion in new exports creates 12,000 to 20,000 jobs -- and mistakenly apply it to overall trade balances. Department of Commerce data shows that history doesn’t support such a correlation.

• From 1982-1987, the U.S. trade deficit quintupled. But employment grew by 12.9 million and unemployment dropped from 9.7 to 6.1%.
• From 1987-1991, the trade deficit was reduced by half. Employment again rose, by 6.3 million, but unemployment increased to 6.7%.
• From 1991-94, the trade deficit more than doubled. Employment was up again, by 5.2 million, while unemployment declined to 6.1%.

While trade balances matter, they have too many variables to accurately measure job loss. Better figures come from the NAFTA-TAA program. As of Sept. 24, nearly two years into NAFTA, the Department of Labor has certified 41,201 dislocated workers for training assistance -- 21,643 from trade with Mexico, 13,508 from trade with Canada and 6,050 with no assigned country of cause.

Myth #4: NAFTA-TAA only shows the tip of the U.S. job loss iceberg.

Reality: If anything, NAFTA-TAA overstates job dislocation from NAFTA.

NAFTA-TAA doesn’t analyze whether NAFTA itself causes job loss. For example, the certification of 520 workers at Mattel's Fisher-Price facility in Medina, New York -- highlighted by Public Citizen -- cites Mexican imports for the dislocation. But the removal of tariffs on imports of Mexican toys preceded NAFTA. Clearly, NAFTA wasn’t the cause.

NAFTA-TAA certifications also don’t represent current unemployment. U.S. data shows average new job searches last about 18 weeks. Based on this, U.S. workers still unemployed among the 21,643 Mexico certifications are less than 7,500.

While every job loss is important, this must be kept in perspective with the 800,000 U.S. jobs that rely on trade with Mexico, and more than 1.5 million jobs that turn over in the U.S. economy every year.

Instead of seeing the glass as 99% full, NAFTA critics are obsessed with the 1% empty. The facts, however, are clear. In today’s global economy, NAFTA isn’t part of the problem -- it’s part of the solution.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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