NAFTA Math

 NAFTA Math

 NAFTA Math

Making government work better.
July 13 1997 3:30 AM

 NAFTA Math

The faulty arithmetic of job losses.

38000_38238_sloan_cuttingmenlead

When the Clinton administration releases its analysis of the impact of the North American Free Trade Agreement this month, NAFTA critics will seize on the data. They'll point to the 125,000 American workers "certified" by the U.S. Department of Labor as having lost their jobs because of the agreement as evidence of the treaty's dangers. They will be pointing in the wrong direction.

Advertisement

A Wall Street Journal reporter recently examined some of these job-loss cases and found that most had little or nothing to do with NAFTA. Like the 500 unionized workers in the Pabst brewery that moved from Milwaukee to a non-unionized plant in La Crosse, Wisc. Or the unionized employees of a Memphis toilet tissue mill that sold out to a non-union company, which reopened the mill on the same spot.

The Labor Department responds that it is not to blame for the sloppy way in which Congress, seeking to soften union opposition to NAFTA in 1993, drafted the NAFTA monitoring rules. The law, for example, does not say that the closing of a brewery (or other plant) has to be directly attributable to NAFTA-induced trade in order for the displaced workers to be eligible for an extra year of unemployment benefits and other "adjustment" assistance. It requires only that imports of beer (or whatever) from Canada or Mexico increased during the relevant period. Nor does it matter whether, as in the case of a Smith-Corona factory, the employer had already planned to move the operation to Mexico; all that counts is that the move was made and that it cost U.S. jobs at some time after NAFTA became law.

Officials also point out that many of the certified NAFTA "victims" drew little or no benefits. Instead they retired, found other jobs--or applied for regular Trade Adjustment Assistance, a larger, older, and also much-abused program. Most workers (who have traditionally been resistant to government efforts to "adjust" them) prefer regular TAA to NAFTA aid because TAA rules, which require workers to sign up for retraining in order to get cash, are more laxly enforced. (In fact, the only advantage NAFTA benefits have is that they may be claimed when jobs are lost to plant relocations, whereas TAA is restricted to job losses related to higher imports.)

38000_38239_sloan_papermenspot

A s a result, the NAFTA benefits program, while growing, still costs less than $30 million a year. But, the Labor Department cautions, the low usage level doesn't mean that harm hasn't occurred. Many workers injured by trade are likely to be employed by small, non-unionized companies and either unaware of the trade benefits, which unions actively peddle to their laid-off members, or in service jobs that are not covered. Still, while these exclusions may bolster the job-loss claims of the NAFTA attackers, they are hardly an advertisement for the equity of the "adjustment"they embrace.

Even if it were possible to find and help every worker directly or indirectly hurt by trade pacts, why should they have a larger claim for public help than those whose jobs are lost to technological change? Or to shifts in consumer taste, lousy management, an overpriced dollar, or domestic competition? Government did not create trade. It created trade barriers. When it removes them, should it incur a special obligation to the formerly protected?

In any case, NAFTA foes can make no credible job-loss case on the basis of Labor Department certifications. They may find some comfort, however, in the aggregate trade statistics. Last year, Canada ran a $21 billion trade surplus with the United States. Mexico, once a net importer of U.S. products, chalked up a $17.5 billion export surplus with the United States (while running a roughly equivalent trade deficit with Asia and Europe, from which it imports large quantities of machinery and partially processed goods for final manufacture in Mexico). This year the numbers are projected to be roughly the same, though Mexico's U.S. surplus is expected to shrink somewhat.

But the net U.S. deficits are only a small part of a larger picture of growing hemispheric integration. Since the pact, the total volume of trade among the NAFTA countries has grown substantially, with partially fabricated goods and parts moving back and forth across borders before reaching consumers. In addition to efficiency gains, these flows have helped Mexico recover from its near-death experience in early 1995, when an orgy of import buying led to the collapse of the peso and the flight of investor capital. Since then, austerity has curbed Mexican buying of European luxuries, and higher tariffs have helped stem the influx of cheap Asian textiles and footwear that threatened its low-end industries. However, the primary engine of Mexican recovery, as Mexico's NAFTA minister in Washington, Luis de la Calle, stresses--and the main hope for spreading internal prosperity, in which the United States has a large stake--has been export growth, with the United States the principal buyer.

Even for trade-worriers, NAFTA must be rated a small-potato concern. The Canadian and Mexican trade surpluses are piddling compared to the nearly $200 billion total trade deficit the United States will likely incur this year. Or even compared to the $54 billion surplus projected for Japan (which, despite its poor-mouthing, continues to enjoy much higher growth and lower inflation and unemployment than the prideful United States). Still more striking is that China--which buys only one-sixth as much from America as Japan does--is expected to ring up its own $54 billion trade surplus with the U.S. market. The American consumer should, of course, be grateful for the opportunity to buy all these fine goods on the credit thus extended. And trust that our foreign creditors will remain willing to invest their surplus dollars in U.S. securities and other assets and to reinvest the proceeds from those investments within our borders in a kindly fashion. But should that willingness ever falter, one thing is sure: No "worker adjustment" program will be able to measure the harm, much less assuage it.

Jodie T. Allen is the senior editor at the Pew Research Center.