Third-World Jobs Are Leaving the US
DAVID ROLLEY offers a measure of economic proportion to the North American Free Trade Agreement (NAFTA).
The DRI/McGraw-Hill economist estimates that the deal, which passed the House of Representatives Wednesday after much hoopla, could increase United States exports to Mexico by $5 billion in the next 12 months, added to the $50 billion in 1993. Of course that will be welcome to the exporters and their employees. But it takes place in an economy with a total output of goods and services this year of around $6.4 trillion - or $6,400 billion. The additional exports under this prediction would thus add not quite 0.1 percent to national output.
Because various businesses will shift production to Mexico or face tougher competition from Mexican imports, some people will lose their jobs in the US. A typical estimate finds 300,000 jobs lost over the next several years, though others will be created.
The US economy, however, produces about 150,000 new jobs a month in a recovery like the present one, Mr. Rolley notes. The economy as a whole would replace those jobs in two months. The individuals who are laid off, though, may not find a job so quickly.
``The whole idea of counting jobs gained and lost through trade represents a misunderstanding of the way the US economy works,'' writes another pro-NAFTA economist, Paul Krugman, in Foreign Affairs. ``In particular, it overlooks the fact that other economic policies, especially monetary policy, will almost surely neutralize any potential impact of NAFTA on jobs.''
Rolley speculates that a 0.25 percent drop in short-term interest rates by the Federal Reserve would overcome any job loss. However, he sees NAFTA as a ``win-win scenario,'' with both Mexico and the US gaining from the decline in trade barriers.
For Mexico, the trade deal is more important economically. That was reflected in markets as victory in Congress was anticipated this week. Stock prices rose on the Mexican stock market. The peso strengthened. Short-term interest rates fell.
Passage of NAFTA should accelerate real growth in Mexico from its present flimsy 1 percent annual rate, Rolley says.
Lawrence Kudlow, chief economist of Bear, Stearns & Co., agrees. ``The Mexican government is in a strong financial position, with a balanced budget, declining indebtedness, declining tax rates, and a constitutional mandate to maintain the purchasing power of the peso,'' he observes. ``Looking forward, Mexico is likely to continue opening its markets, ... creating growing exports and investment. Having had five years of rising economic prospects, Mexico is likely to carry out the smoothest and fairest election in its history in August 1994.''
In the US, a big concern with NAFTA has been that it will accelerate a trend toward income inequality. Those with university educations have enjoyed solid boosts in their income. Workers with high school or less schooling have suffered a decline in their standards of living. Competition from the many Mexicans with low wages, NAFTA opponents have argued, will further depress the incomes of less-educated Americans.
Rolley says low-wage manufacturing jobs are already gone - but more likely to China with its 1.1 billion people than to Mexico. When it showers on Manhattan, suddenly a host of young men appear on the streets selling $3 umbrellas - made in China. It is about as cheap to put inexpensive manufactured goods in containers and ship them across the Pacific as it is to put them in trucks and drive them across the Rio Grande River, he says.
``Third-world jobs will earn third-world wages,'' he warns. So the US must do more to upgrade the skills and education of its workers. However, he notes, many low-skill jobs in the service sector cannot be exported. For example, many drivers in the private mail delivery business (such as Federal Express) need to read, but not too much more. Such jobs are expanding in number.
One important aspect of the NAFTA victory in addition to its political merits for President Clinton is that it improves the prospects for the world trade talks under the General Agreement on Tariffs and Trade that are supposed to be wound up next month. Here the gains could add up. A study by the World Bank and the Organization for Economic Cooperation and Development estimates that success would add $220 billion to the economies of the seven major industrial nations in the next decade.