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| US Trade Rep Robert Lighthizer |
Three rounds of North American Free Trade Agreement (NAFTA)
negotiations came and went without much fanfare. But the fourth round, held in
early October, included strong Trump administration proposals which start to
fulfill promises to get tough on trade.
Mexico and Canada complained about the proposals. The NAFTA negotiations
are now looming as the arena for a major international showdown.
Predictably, multinational corporations are howling with
rage and fear, worried that they may lose important weapons in their perennial
battle to reduce their US costs by shipping jobs overseas and forcing US
workers to compete with low-paid foreign workers. Meanwhile, President Trump has let the media
know that he would not be adverse to walking away from the NAFTA agreement if
his negotiators can’t bring him a good enough deal.
The two key NAFTA issues upsetting the free trade coalition
of multinationals and the Wall Street financial community are rules of origin
for the auto industry and sunsetting.
Rules of origin state how much of the value of a car or
truck must originate in the three NAFTA countries (US, Mexico, Canada) for the
product to count as NAFTA-produced. The current requirement is 62.5%. The Trump
administration wants to raise that to 85%, and also add a new requirement for
the US content of the vehicle to be 50% for it to qualify as a NAFTA-produced
vehicle. In the 23 years since NAFTA went into effect, the US auto industry has
suffered a loss of jobs and a substantial decline in inflation-adjusted wages,
driven in large part by competitive pressure from Mexico. According to a CPA
analysis submitted to the US Department of Commerce earlier this year, the real
wages of auto production workers have fallen by 27% since 2002. In other
industries, the wage declines have been smaller but still significant. The
sectors with the biggest declines map directly to the sectors where the most
production has moved to Mexico.
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Note: this post is reprinted from The Hill, where it has 195 comments, and the CPA website.
The wage disparity between the US and Mexico is glaring. The
average manufacturing wage in the US is today $26 an hour. According to reports
from Mexico, a Mexican carworker is paid between $2 and $3 an hour. That’s
roughly a 10:1 differential. And Mexican wages have shown little tendency to
rise in recent years—not surprising considering that labor unions in Mexico are
essentially paper tigers controlled by management and the government, and
Mexico suffers from ample unemployment. The 10:1 ratio on wages was also cited
in a lengthy article
in last week’s New York Times documenting the closure and shift to Mexico by
Rexnord of a historic Indiana bearing manufacturing plant. In the article the
American production worker, highly skilled machine operator Shannon Mulcahy,
and her Mexican replacement worked out the ratio of his pay to her pay. Her
replacement, Ricardo, determined that Rexnord can employ “ten Ricardos” for
“one Shannon.”
A recent Department of Commerce study showed that the
non-NAFTA content of US automotive imports from Mexico has almost doubled
between 1995 and 2011, the most recent year in which data is available. The
non-NAFTA figure went from 14% to 27%. The Administration’s goal is to reverse
that trend, and also to increase the share of US content in NAFTA-produced
vehicles. This won’t stop the shift of production to Mexico, but it should slow
it down.
Trump administration trade negotiator Robert Lighthizer is
pushing for a “sunsetting” clause in NAFTA, requiring the agreement to end
after five years unless all parties renew it.
[All business contracts in the US are temporary. Courts will not enforce
contracts that are permanent. The reason is that technology, economic
conditions, products and many other factors change over time. Why should trade agreements, which are
business contracts between countries,be any different? The federal government
should be forced to periodically consider whether an agreement continues to
meet expectations sufficient to renew it.
And if a NAFTA agreement cannot be reached, the US should
just walk away. Some deals just don’t work out, and NAFTA may be one of those. With
a negative trade balance last year of $70 billion, NAFTA has led to a loss of
some one million US jobs. If that is not failure, what is?
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