Posted on 01/03/2003 11:28:18 AM PST by madeinchina
On December 9, three former national leaders - President George Bush, Canadian Prime Minister Brian Mulroney, and Mexican President Carlos Salinas de Gortari - gathered to mark the 10th anniversary of their signing of the North American Free Trade Agreement (NAFTA) in Washington, D.C.
Most of the debate about NAFTA has focused on the movement of plants to Mexico and the direct loss of American jobs as Mexican laborers earning less than $2 an hour are used to replace American workers making six or eight times as much, plus health and pension benefits. Though there are trade disputes with Canada regarding specific industries, America's partnership to the north does not spark the same kind of fundamental concern. Income, living conditions and the rule of law are similar in Canada to U.S. standards, which puts trade on a more level playing field.
The news media has tried to downplay the celebration of NAFTA's first decade, arguing that while the grandiose benefits from "free trade" have not materialized, the American job loses to Mexico have not been as bad as critics predicted. But saying that NAFTA's failure could have been worse is not exactly the kind of verdict that warrants a grand gala.
One of the most infamous predictions of NAFTA benefits was made by Gary Hufbauer of the Institute for International Economics, a well-financed "free trade" think tank. In a 1992 study, Hufbauer claimed, "NAFTA will generate a $7 to $9 billion surplus that would ensure the net creation of 170,000 jobs in the U.S. economy the first year." This did not happen, of course, and as the Wall Street Journal reported in its October 26, 1995 edition, "Gary Hufbauer...whose predictions of NAFTA job gains were embraced by the Clinton and Bush White Houses now figures the surging trade deficit with Mexico has cost the U.S. 225,000 jobs."
One should not talk really about jobs in such a context, but job opportunities. Under normal circumstances, subject to the vagaries of the business cycle and to external shocks, a developed economy like that of the United States will tend towards full employment. That means the economy creates around two million jobs a year, as people take whatever jobs are available in order to make a living. The adjustment mechanism is the wage rate. At what wage level will the labor market balance? One would think that given the almost magical progress made in technology in recent decades, and the cooling of inflation, real wages would be on the rise; but alas this has not been the case.
According to the 2002-2003 edition of The State of Working America by Lawrence Mishel, Jared Bernstein, and Heather Boushey, real wages in 2001 were lower than they had been in 1979. This is due to two main factors: the changing composition of the workforce, as high-paying manufacturing employment fell relative to lower paying service sector jobs, and the chilling effect on wage increases across the board due to foreign competition.
In 2000, America imported over $1 trillion worth of manufactured goods, including $196 billion in autos and auto parts, and $347 billion in capital goods and equipment. The result was a $452 billion trade deficit in goods, the measure of the net loss to the United States in industrial capacity and job opportunities. The trade numbers have only gotten worse since, and the U.S. will easily break the $500 billion mark for its 2002 goods deficit.
The $24.6 billion U.S. trade deficit with Mexico in 2000 was not the main cause of the overall deficit, but it was a contributing factor and a complete refutation of the predictions that NAFTA would be a positive factor in America's international accounts. In 2000, the U.S. automotive trade deficit with Mexico was itself $24 billion. General Motors, Ford, DaimlerChrysler, Delphi Automotive Systems, and other leading automakers and parts suppliers have major operations in Mexico. Other major manufactured exports from Mexico include electronic products and telecommunication equipment, which are primarily assembled in the maquiladora export-processing zones along the border.
The claim that NAFTA would make Mexico a "big emerging market" for American exports confused population with purchasing power. Mexico is a low income country, burdened by debt and a trade deficit with the rest of the world, which limits its ability to increase imports for domestic consumption without risking another financial crisis. The only practical way for an American company to sell to Mexican consumers is from factories built inside Mexico.
Another major argument for NAFTA was that American firms needed a low-wage export platform in Mexico to combat Asian rivals. But Mexico is an export platform aimed only at the United States, not at other developed markets. Rival Asian and European firms have even set up their own maquiladora plants to better flood the American market. Mexico thus imports parts and equipment from overseas but does not send exports back to these countries. Instead, the foreign goods are used to produce exports shipped into the U.S. In 2000, Mexico sent 91 percent of its exports to the U.S. compared to 3 percent shipped to Europe and only one percent to Asia.
Thus while Mexico earned a $24.6 billion surplus with the United States in 2001, it racked up deficits with the European Union (-$9.9 billion), Japan (-$6.7 billion), China (-$3.3 billion), South Korea (-$3.0 billion), Taiwan (-$2.4 billion), Brazil (-$1.3 billion), and virtually every other country with which it did any substantial trade. Mexico has become just another conduit for the transfer of U.S. wealth to the rest of the world.
The United States negotiated NAFTA to help solve American economic problems that were growing to dangerous levels in the mid-1990s. But rather than counter adverse trends, NAFTA has added to them by shifting industrial capacity and job opportunities south of the border, while expanding the trade deficit. The only possible verdict is that NAFTA has been another failure in U.S. trade policy, and is nothing to celebrate.
Hmmmm... we get goods, they get fiat money. You have to make a more convincing case that this is a bad situation - don't get me wrong, I am willing to be convinced, but paying for goods from other countries with paper fiat money doesn't seem like such a bad deal...
There's exactly the same confusion over the Chinese market.
It is also another argument to keep our currancy off of any standard. This was the reason we went off the gold standard.
Say Goodbye to the Golden Land
Patrick J. Buchanan
November 27 2002
That 70 percent fall in the NASDAQ and 25 percent decline in the Dow, and the recession and unemployment they produced, have begun to cause major collateral damage to municipal and state budgets.
The Empire State and the Big Apple are staring at a combined deficit of $15 billion, "a crisis of historic proportions," says the Washington Post. Rudy Guiliani's successor, Michael Bloomberg, has watched his popularity plummet to 41 percent, as he proposes raising property taxes 18 percent, piling $3 billion in income taxes on commuters, raising subway fares a third and putting tolls on the Brooklyn Bridge.
The salad days of the Clinton Decade, when the tough decision facing mayors and governors seemed to be whether to spend surpluses on raising teachers' pay or cutting taxes, are over.
The 2001 recession cost 2 million Americans their jobs. It has bitten into tax revenues nationwide and forced higher spending on social services. The bear market has killed the goose that laid those golden eggs called capital gains. And with the U.S. trade deficit over $450 billion, the U.S. manufacturing base – a cornucopia of tax revenue – continues to hollow out.
NAFTA and GATT, the trade deals beloved of the Beltway elite and the multinationals, continue to suck out of America the manufacturing jobs that were the on-ramp to the middle class. This is a central cause of the crisis of upstate New York, over which our pro-NAFTA politicians so copiously weep.
The fat years are over; the lean years are here. While congressmen may have managed to draw up districts so safe that only one in 20 House races is competitive, governors of both parties will spend this present decade on the endangered species list.
New York's crisis, however, pales beside that of the Golden State. Having spent California's cut of Big Tobacco's future profits – to close a $23 billion deficit in this election year – Gov. Gray Davis is now staring at deficits stretching to the end of his new four-year term.
"Hold onto your wallet," warns Nancy Sidhu of the Los Angeles Development Corp. LADC projects "a deficit of $6 billion this year, at least $21 billion in 2003-04 and between $12 billion and $16 billion annually for the next six years."
Adds the Financial Times, "The near-term deficit, approaching 25 percent of California's annual spending, is the most extreme example of the fiscal blight spreading through other states and down to local authorities." Davis' budget crisis can be traced to two causes: loss of 200,000 manufacturing jobs in two years and the devastation wrought to the software industry of Silicon Valley.
But something more ominous is happening to California, akin to what happened to New York after the war. Folks are simply packing up and pulling out. Middle-class Californians, uncomfortable with the radical ethnic changes reshaping the state and weary of the tax load, are leaving for good. In the 1990s, for the first time in history, there was a net out-migration of native-born Californians. Two million left. And as high-income Californians depart, to be replaced by low-wage Latins and Asians who consume more in services than they pay in taxes, California's deficits will explode. And as Gray Davis tries to salvage social programs by squeezing taxpayers even more, even more taxpayers will join the exodus.
California is inexorably headed for Third World status. Tax rates will have to be raised again and again, but immigrant folks picking fruit, working in kitchens and washing cars do not pay the same amount of taxes auto and aerospace workers did. Somebody has to make up the difference. And that somebody is packing up and heading east.
There is no end in sight to the substitution of a new and different California for the old California we all knew. California remains the first choice of final residence for one-third of the 1.5 million aliens who break into this country every year. In the counties of Los Angeles, San Bernardino, Riverside and Orange, poverty levels soared throughout the 1990s.
Meanwhile, the grandchildren of the Dust Bowl Okies who came west in the 1930s, and the grandkids of the veterans of World War II who came after 1945, are moving to Nevada, Colorado and Idaho. In the last decade, 225,000 left for Arizona. And as those states become more Republican, the Golden State becomes as reliably Democratic as Washington, D.C.
The 1990s were good years for Big Government. In Washington and state capitals, politicians bought popularity and re-election with their unanticipated windfalls of tax dollars. Now the spigot has been cut off. The coming budget wars in state capitals should make for some interesting politics.
Key word being WERE here. Nowadays the entrance to the middle class is technical, medical and other professional jobs. IMO the decrease in manufacturing pay has more to do with the decline of unions than with Nafta (although both are significant factors). But the problem with state governments has less to do with Nafta and much more to do with the fact that most went hog wild during the salad days of the 1990s, created way too many expensive programs filled with expensive state employees, and they are now loathe to be forced to cut back the way a private company would be. I find it rather disingenious that Pat would try to connect Nafta to state government problems - to me, I'm kinda glad the wonks are having to face reality along with the rest of us.
Ross was right.
And if they are willing to hold said fiat money, you would be correct. Of course, that won't happen. They will either 1) buy American assets (check the levels of FDI foreign direct investment and the % of government securities held outside the US) or 2) they will decide that the American fiat dollar is no longer a safe store of value and they will sell it for whatever they can get. And the dollar will fall.
Either way, the massive trade deficit that we are running is unsustainable. The only question is how much pain we'll suffer when the chickens come home to roost.
Hard to say. Would YOU want to spend 40 hours a week packaging Christmas lights or hand-painting toys? I have some definite issues with the way Nafta and other programs are handled, but I also believe that if we can get foreign workers to make goods for cheap and then create better jobs for American workers, it's not necessarily a bad thing.
Ross was right.
Ross gave us eight years of Bill Clinton. I don't care how right you think he was, that was the ultimate wrong of the 1990s...
"created way too many expensive programs filled with expensive state employees, "
The real growth industry continues to be governments. (and they are NAFTA free).
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Indeed he was.
This is one of those things I have been hearing since as long as I can remember. 30 years ago I was a small boy sitting with my dad while he watched the news. And on the TV, someone was talking about Arafat causing trouble in the middle east, how were we going to get the oil we need, and how the trade deficit was going to ruin us.
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No, idiot child. Bush Senior gave us eight years of Bill Clinton.
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No, dear hearts. NAFT and shipping industries to foreign nations have been an outstanding success.
About 40 years ago leftist theoreticians told me the way to achieve one-world socialism and world peace was to bring the American economy down to levels of various foreign nations so that there would be nothing to lose by erasure of national boundaries and with loss of sovereignty to one-world organizations. The idea has been repackaged and sold over the years. People such as the Bushs who think with the depth of 10 year olds bought into it. So have many people here.
So... our economic system is slowly being brought down into parity with other portions of the world and our borders are being erased. The one-world leftist strategy is working as it was originally conceived.
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Ther is no indication that the votes that went to Perot would have gone to Bush if Perot had not run. The indication is quite the opposite. Perot brought new people into the voting booths to create a percentage of turnout that hasnt been matched since then. Without Perot, people just stay home in disgust. Bush was a loser on his own. Quit trying to blame Perot or horoscopes or anything else.
Brought down? Show me the proof. C'mon, Chicken Little. Show me a year in the United States when GDP went down. In every single year from 1991 to 2001, by any measure (nominal, real, per capita) GDP in the U.S. increased. Your spreading lies, and I can't tell if it's maliciousness or ignorance.
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