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Louis Uchitelle on Life After NAFTA

Louis Uchitelle:

Nafta Should Have Stopped Illegal Immigration, Right? - New York Times: THE North American Free Trade Agreement, enacted by Congress 14 years ago, held out an alluring promise: the agreement would reduce illegal immigration from Mexico. Mexicans, the argument went, would enjoy the prosperity and employment that the trade agreement would undoubtedly generate--and not feel the need to cross the border into the United States. But today the number of illegal migrants has only continued to rise....

When Nafta finally became a reality, on Jan. 1, 1994, American investment flooded into Mexico, mostly to finance factories that manufacture automobiles, appliances, TV sets, apparel and the like. The expectation was that the Mexican government would do its part by investing billions of dollars in roads, schooling, sanitation, housing and other needs to accommodate the new factories as they spread through the country.

It was more than an expectation. Many Mexican officials in the government of President Carlos Salinas de Gortari assured the Clinton administration that the investment would take place, and believed it themselves, said Gary Hufbauer.... But "it just did not happen," he said. Absent that investment, foreign factories congregated in the north, within 300 miles of the American border, where some infrastructure already existed. "Monterrey is quite good," Mr. Hufbauer said, "but in a lot of other cities the infrastructure is terrible, not even enough running water or electricity in poor neighborhoods. People get temporary jobs, but that is all."

Meanwhile, Mexican manufacturers, once protected by tariffs on a host of products, were driven out of business as less expensive, higher quality merchandise flowed into the country. Later, China, with its even-cheaper labor, added to the pressure, luring away manufacturers and jobs.... [T]otal manufacturing employment in Mexico declined to 3.5 million by 2004 from a high of 4.1 million in 2000, according to a calculation of Robert A. Blecker, an American University economist.

As relatively well-paying jobs disappeared, Mexico's average wage for production workers, already low, fell further behind the average hourly pay of production workers in the United States, and Mexicans responded by migrating. "The main thing that would have stemmed the flow of people across the border was a rapid increase in wages in Mexico," said Dani Rodrik, an economist and trade specialist at Harvard's John F. Kennedy School of Government. "And that certainly has not happened."...

A financial crisis also dashed expectations. One expectation was that the Mexican economy, driven by Nafta, would grow rapidly, generating jobs and keeping Mexicans home. The peso crisis of 1994-95, however, provoked a steep recession, and while there was some big growth later, the average annual growth rate over Nafta's lifetime has been less than 3 percent....

"We underestimated Mexico's deficits in physical and human infrastructure," said J. Bradford DeLong, an economist at the University of California, Berkeley, and a Treasury official in the Clinton administration. But, he says, without Nafta the migration would have been even greater. For instance, he says, there would not have been as much investment in the north of the country....

The European Union, in contrast, assumes little about government spending on the part of economically weaker nations joining it. The union itself has hugely subsidized the improved services needed by entering countries like Portugal, Spain, Greece and Poland, rather than leave financing to the relatively meager resources of entering countries. The money is used not only for public investment, Mr. Rodrik noted, but also to subsidize companies setting up operations in the new countries and to support government budgets. "I am not saying Nafta was a bad agreement," Mr. Rodrik said."But more than a trade agreement is required for countries to converge economically. And Nafta has been viewed as a shortcut to convergence without having to do all the other stuff."

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