NAFTA at 20: Two Decades of Job Loss, Record Inequality, Mass Displacement, and Corporate Attacks on Environmental and Health Laws
Today marks the 20th anniversary of the implementation of the North American Free Trade Agreement (NAFTA). The promises made by NAFTA proponents and warnings issued by its opponents during the fierce 1993 debate over congressional approval of the pact can now be measured against two decades of actual outcomes. For a detailed analysis of NAFTA's two-decade legacy, check out our new NAFTA at 20 report.
NAFTA was an experiment, establishing a radically new “trade” agreement model. Despite the documented damage caused by 20 years of NAFTA, the Obama administration is now seeking to deepen the NAFTA model and expand it to additional countries through the Trans-Pacific Partnership (TPP), a massive agreement with 11 Asian and Latin American countries. The Clinton administration’s efforts to do the same – through a Free Trade Area of the Americas and an Asia-Pacific Economic Cooperation (APEC) Free Trade Agreement (FTA) – were rejected by negotiating partners as the damaging results of NAFTA became apparent.
NAFTA was fundamentally different than past trade agreements in that it was only partially about trade. Indeed, it shattered the boundaries of past U.S. trade pacts, which had focused narrowly on cutting tariffs and easing quotas. In contrast, NAFTA created new privileges and protections for foreign investors that incentivized the offshoring of investment and jobs by eliminating many of the risks normally associated with moving production to low-wage countries. NAFTA allowed foreign investors to directly challenge before foreign tribunals domestic policies and actions, demanding government compensation for policies that they claimed undermined their expected future profits. NAFTA also contained chapters that required the three countries to limit regulation of services, such as trucking and banking; extend medicine patent monopolies; limit food and product safety standards and border inspection; and waive domestic procurement preferences, such as Buy American.
In 1993, NAFTA was sold to the U.S. public with grand promises. NAFTA would create hundreds of thousands of good jobs here – 170,000 per year according the Peterson Institute for International Economics. U.S. farmers would export their way to wealth. NAFTA would bring Mexico to a first-world level of economic prosperity and stability, providing new economic opportunities there that would reduce immigration to the United States. Environmental standards would improve.
Twenty years later, the grand promises made by NAFTA’s proponents remain unfulfilled. Many outcomes are exactly the opposite of what was promised, as detailed in our new NAFTA at 20 report. In sum:
- Rather than creating the promised 170,000 jobs per year, NAFTA has contributed to an enormous new U.S. trade deficit with Mexico and Canada, which had already equated to an estimated net loss of one million U.S. jobs by 2004. This figure, calculated by the Economic Policy Institute, includes the net balance between jobs created and jobs lost. Much of the job erosion stems from the decisions of U.S. firms to embrace NAFTA’s new foreign investor privileges and relocate production to Mexico to take advantage of its lower wages and weaker environmental standards. The NAFTA-spurred job loss has not abated during NAFTA’s second decade, as the burgeoning post-NAFTA U.S. trade deficit with Canada and Mexico has not declined.
- More than 845,000 specific U.S. workers have been certified for Trade Adjustment Assistance (TAA) as having lost their jobs due to imports from Canada and Mexico or the relocation of factories to those countries. The TAA program is quite narrow, only covering a subset of the jobs lost at manufacturing facilities, and is difficult to qualify for. Thus, the NAFTA TAA numbers significantly undercount NAFTA job loss.
- NAFTA has contributed to downward pressure on U.S. wages and growing income inequality. According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent. As increasing numbers of workers displaced from manufacturing jobs have joined the glut of workers competing for non-offshorable, low-skill jobs in sectors such as hospitality and food service, real wages have also fallen in these sectors under NAFTA. The resulting downward pressure on middle-class wages has fueled recent growth in income inequality.
- Despite a 188 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal price of food in the United States has jumped 65 percent since the deal went into effect. This is the opposite of the outcome promised when NAFTA passage was debated. Then, some NAFTA proponents acknowledged that the deal would cause the loss of some U.S. jobs, but argued that U.S. workers would win overall by being able to purchase cheaper imported goods.
- The reductions in consumer goods prices that have materialized have not been sufficient to offset the losses to wages under NAFTA. U.S. workers without college degrees (63 percent of the workforce) have likely lost an amount equal to 12.2 percent of their wages under NAFTA-style trade even after accounting for the benefits of cheaper goods. This net loss, calculated by the Center for Economic and Policy Research, means a loss of more than $3,300 per year for a worker earning the median annual wage of $27,500.
- Soon after NAFTA’s passage, the small pre-NAFTA U.S. trade surplus with Mexico turned into a massive new trade deficit and the pre-NAFTA U.S. trade deficit with Canada expanded greatly. The inflation-adjusted U.S. trade surplus with Mexico of $2.5 billion and the $29.1 billion deficit with Canada in the year before NAFTA have morphed into a combined NAFTA trade deficit of $181 billion. The rosy job-creation promises made at the time of the NAFTA votes were predicated on NAFTA improving the U.S. balance of trade. The reality has been the opposite.
- During the NAFTA debate, scores of U.S. corporations promised to create specific numbers of jobs if NAFTA passed. Public Citizen catalogued these pledges, the failure to meet them and even the record of the same firms’ relocation of jobs to Mexico and Canada in a comprehensive report.
- Scores of NAFTA countries’ environmental and health laws have been challenged in foreign tribunals through the controversial investor-state system. More than $360 million in compensation to investors has been extracted from NAFTA governments via “investor-state” tribunal challenges against toxics bans, land-use rules, water and forestry policies and more. More than $12.4 billion are currently pending in such claims. These claims include foreign investor challenges of medicine patent policies, a fracking moratorium and a renewable energy program.
- The average annual U.S. agricultural trade deficit with Mexico and Canada under NAFTA stands at $800 million, more than twice the pre-NAFTA level. U.S. food processors moved to Mexico to take advantage of low wages and food imports soared. U.S. beef imports from Mexico and Canada, for example, have risen 130 percent since NAFTA took effect, and today U.S. consumption of “NAFTA” beef tops $1.3 billion annually.
- Overall imports of food into the United States have risen more steadily and to a greater degree than U.S. food exports under NAFTA. While the total volume of U.S. food exports in 2012 stood only 34 percent higher than the average level in the five years before NAFTA took effect, the volume of U.S. food imports was 137 percent higher. This stands in stark contrast to the promises made to U.S. farmers and ranchers that NAFTA would allow them to export their way to newfound wealth and farm income stability.
- The export of subsidized U.S. corn did increase under NAFTA, destroying the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture.
- The desperate migration of those displaced from Mexico’s rural economy pushed down wages in Mexico’s border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA’s implementation.
- Though the price paid to Mexican farmers for corn plummeted after NAFTA, the deregulated retail price of tortillas – Mexico’s staple food – shot up 279 percent in the pact’s first 10 years.
- Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods as on the day that NAFTA took effect. Despite promises that NAFTA would benefit Mexican consumers by granting access to cheaper imported products, the cost of basic consumer goods in Mexico has risen to seven times the pre-NAFTA level, while the minimum wage stands at only four times the pre-NAFTA level.
- Facing displacement, rising prices and stagnant wages, over half of the Mexican population, and over 60 percent of the rural population, still fall below the poverty line, despite the promises made by NAFTA’s proponents.
U.S. Public Opinion Polling Shows Overwhelming Opposition to NAFTA
The U.S. public’s view of NAFTA has shifted from a divide during the time of the NAFTA debate to broad opposition and now to overwhelming opposition to NAFTA-style trade deals. According to a 2012 Angus Reid Public Opinion poll, 53 percent of Americans believe the United States should “do whatever is necessary” to “renegotiate” or “leave” NAFTA, while only 15 percent believe the United States should “continue to be a member of NAFTA.” Rejection of the trade deal is the predominant stance of Democrats, Republicans and independents alike. NAFTA has drawn the ire of Americans across stunningly diverse demographics. A 2011 National Journal poll showed strong rejection of the status quo trade model from both lower-educated and higher-educated respondents, and a 2010 NBC News – Wall Street Journal survey revealed that a majority of upper-income respondents have now joined lower-income respondents in opposing NAFTA-style pacts.
Given NAFTA’s record of diverse damage, it is not surprising that opposition to the TPP – a supersized NAFTA that would be open for any Pacific Rim country to later join – is growing among the U.S. public and in Congress.
For a detailed analysis of NAFTA's two-decade legacy of job loss, income inequality, agricultural instability, corporate attacks on safeguards, and mass displacement, check out our new NAFTA at 20 report.