NAFTA Fallout Irks Workers Across America

FROM where Al Cruickshank stands - assembling brakes at Motor Wheel Corp. in Ypsilanti, Mich. - the North American Free Trade Agreement is a total bust. He slaps the trade pact with a bruising tag: the "NAFTA shaft."

Like workers nationwide, Mr. Cruickshank has seen none of the 170,000 net new jobs promised two years ago by the Clinton administration when it won approval for NAFTA. Instead, he has watched as NAFTA, a pact protecting investment and eliminating tariffs between Canada, Mexico, and the United States, has wiped out jobs at Motor Wheel and hundreds of other manufacturers.

The apparent backfire of NAFTA has sharpened the country's oversimplified and emotional debate between free-traders and economic nationalists. Some presidential contenders, hoping to ride a tide of voter resentment, blame NAFTA and liberalized trade for stagnant wages and job insecurity.

"NAFTA has become the Bosnia of economic policy," says Gary Hufbauer, a trade economist in Washington. "It has become the symbol of national doubt" about free trade.

After two years of the trade accord, NAFTA still generates plenty of political heat - but little economic light so far.

"Globalization ... is now a negative word, as people unjustifiably link freer trade with stagnant wages and job instability," says Mr. Hufbauer, who works at the Institute for International Economics. His estimate that the agreement would generate 170,000 new jobs in the United States by 1995 was the yardstick upheld by both the Bush and Clinton administrations in support of the deal.

The figure underestimated how much imports would undermine jobs. An unexpected and severe recession in Mexico and devaluation of the peso also badly harmed US employment by spurring Mexican imports, Hufbauer says.

Now, estimates of net job losses from NAFTA range from 25,000 to more than 350,000. America's 1995 trade deficit with Mexico exceeded $15 billion.

Yet, economists say, claims that NAFTA is a debacle seem premature, especially in light of signs the treaty might eventually bring about sizeable US employment. The trade pact has bolstered investment in Mexico and softened the impact of the peso crisis on Mexican jobs. Most critics of the agreement point primarily to the immediate harm to US payrolls caused by competition from cheap foreign labor.

"NAFTA is sinking in a sea of broken promises," says Lori Wallach at Public Citizen, a consumer advocacy group that campaigned against the accord. A Public Citizen report released Jan. 1 argues NAFTA has increased pollution along the US-Mexico border. Detractors also say the treaty takes jobs disproportionately from women and rural workers dependent on traditional manufacturing.

Impact in Ypsilanti

Although it will be years before NAFTA can be definitively judged as either a boon or a bust, the agreement dramatizes how market forces, when suddenly unleashed, restructure economies and expose business and labor to both greater insecurity and opportunity.

The pact is clearly cutting both ways in the proud blue-collar city of Ypsilanti.

"NAFTA is not helping our people, that's for sure," says Cruickshank, president of the United Auto Workers local for the Ypsilanti plant of Motor Wheel Corp. The US Department of Labor recently determined that 54 Motor Wheel employees lost their jobs because of a production shift to Mexico.

"Without NAFTA we could've had a whole lot more people working, and they would have had higher-paying jobs that would have allowed them to do better for their families," Cruickshank says.

But NAFTA should not carry all the blame for the lost jobs at Motor Wheel. Across the country, labor tied to the auto industry began losing jobs to Mexico well before NAFTA, as US automakers built several plants south of the border.

In Ypsilanti, General Motors Corp. skirted intense union opposition and in 1993 closed a factory employing 4,000 at the Willow Run Airport. The shutdown followed heavy GM investment in Mexican assembly plants beginning in the mid-1980s.

Similarly, Motor Wheel decided to build its plant in Monterrey, Mexico two years before NAFTA became law, says company spokesman Jim Lounsbery. The Okemos, Mich., company did so because its US-based customers that assemble cars in Mexico said it would lose some large steady orders otherwise, he says.

After accelerating the loss of Ypsilanti jobs to Mexico, NAFTA could eventually generate employment. Local businesses and city and county officials are trying to cash in on the rising NAFTA trade, ironically at the abandoned GM plant.

The group aims to extend the runway, foster businesses, and create the Willow Run International Trade Port. The airport, already one of the busiest destinations for cargo aircraft in the country, would employ as many as 25,000 people within 25 years, its boosters predict.

About 30 miles southwest of Ypsilanti, NAFTA has subjected Adrian, Mich. to the same Jekyll and Hyde treatment. The Labor Department is aiding 105 workers who have lost their jobs at Dura Convertible Systems and the AMCO Manufacturing Corp., both makers of convertible tops. Like Motor Wheel, the two Adrian companies were given a tacit ultimatum by a major customer to either build a factory in Mexico or lose a big chunk of business.

The workers at Adrian are some of more than 49,000 receiving unemployment insurance and retraining funds under a Labor Department program for workers made jobless by NAFTA. The figure understates the job loss from the treaty, because many companies and idled workers are unaware of the department's aid program, called NAFTA Transitional Adjustment Assistance. At the same time, the program does not require workers to prove that NAFTA prompted their unemployment. They must simply show that they faced increased competition from Mexico or Canada.

While taking away some jobs in Adrian, NAFTA has made it easier for Canadian auto-parts makers to invest in the area, says David Munson, president of the Lenawee County Chamber of Commerce in Adrian, the county seat.

"I opposed NAFTA and had some real fears about it like a lot of companies in the county, but now I no longer have those fears," Mr. Munson says. He reckons NAFTA has created at least as many jobs as it has wiped out in the county.

"At this point NAFTA has been relatively insignificant," Munson says. Still, he concedes that voters could suddenly sour toward NAFTA during a recession, when Lenawee and other southeast Michigan counties dependent on the highly cyclical auto industry see unemployment surge.

Next recession a crucial test

Indeed, analysts say the trade pact will probably come under fiercer fire nationwide during the next US recession, as idled workers blame their joblessness on trade initiatives.

"We don't have that old wall-to-wall free-trade coalition" that included some large labor unions and leading liberal politicians, says Bill Frenzel, a former congressman who is now a guest scholar at the Brookings Institution,Washington.

"Free traders will be very susceptible to attack by economic nationalists during the next recession," he says.

It stands to reason that the popular image of NAFTA depends on the vitality of the national economy. The impact of the treaty is paltry compared with the size of the US economy: The estimated 1995 trade deficit with Mexico amounts to 0.2 percent of the $7 trillion national economy, for example.

Still, presidential candidates such as Patrick Buchanan have apparently found the potential political payoffs from opposing NAFTA irresistible. Free-traders say nationalists' highly charged fight against NAFTA could reduce long-term prosperity and US competitiveness.

NAFTA is the first glaring test case for a momentous public debate over whether the United States should speed or resist an inexorable world trend toward reduced government intervention in trade and a free global economy, say advocates of liberalized trade. The fall of NAFTA would threaten broader trade initiatives, they say.

Already, the Clinton administration and Congress have cooled efforts to bring Chile within NAFTA.

Supporters of free trade lament this lost momentum, arguing future economic growth in the US and abroad will be closely linked to growth in trade.

NAFTA, they point out, has achieved some of its central goals by bolstering cross-border investment and trade, despite a harsh recession in Mexico. Since 1993, US-Mexico trade has jumped 25 percent. And US direct investment in Mexico swelled to $16 billion in 1994, 60 percent more than in 1990.

Moreover, NAFTA has enabled Mexico to soften its downturn by exporting more. Since December 1994, when the peso was devalued by half, the Mexican economy has shrunk 8 percent with a net loss of 700,000 jobs. Only exporting industries generated significant employment, adding 400,000 jobs as exports to the US last year rose 19 percent over the 1994 figure, according to Commerce Department estimates.

Finally, NAFTA has compelled Mexico to remain open to foreign trade and investment, despite its economic travails. During its last economic crisis in 1982, Mexico curtailed foreign economic influence and did not begin to open up again for several years.

Free trade "is simply going to happen," asserts Mr. Frenzel, "and no president or Congress can stand in the way of it or they will be eaten alive."

Critics disagree. "The notion that free trade is inevitable is just not right; trade is a conscious choice," says Ms. Wallach at Public Citizen. "The problem is, recently trade has become an end in itself."