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Thunderbird Professors’ ‘Dear NAFTA’ Letter: Time to Join the 21st Century
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ebate over the North American Free Trade Agreement (NAFTA) began well before the ink dried in 1993, and it continues today. That debate has chiefly focused on trade between the United States and Mexico, but two Thunderbird professors argue that it’s high time for a broader analysis of NAFTA’s impact, as well as some updates for the 21st century. In a working paper by Thunderbird School of Global Management professors Jonas Gamso and Robert Grosse, the scholars assert that widening the scope of the debate – with attention not only to trade but foreign direct investment (FDI), employment, immigration, technology, labor interests, and the environment – can pinpoint areas where NAFTA should change and improve. “Updating NAFTA to bring it into line with more recent U.S. trade agreements and with the realities of the current economic and technological landscape – which are quite different from the landscape of the early 1990s – will have more consequential effects,” Gamso and Grosse write. NAFTA aimed to remove barriers to
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trade among the United States, Mexico and Canada and create stronger ties to boost production and jobs in each country. Its success in these aims has varied. The rate of growth in U.S. trade with Mexico, already on a strong upward trend in the early 1990s, did not see a post-NAFTA spike, though imports did grow more rapidly than exports.
NAFTA’S IMPACT? IT’S COMPLICATED Many external factors in the 1990s impacted the economies of NAFTA’s member countries – elections, currency devaluations, and technological innovations to name just a few. Their coincident timing makes it difficult to discern the impact from NAFTA versus from those other factors. For example, Gamso and Grosse point out, the offshoring and outsourcing made possible by new technology shifted a large amount of manufacturing assembly from the U.S. to Mexico, and even more to China. “The impact of NAFTA’s marginal reduction in tariffs among the three countries was of a much smaller order.” But NAFTA most certainly created
shifts in other business activities. FDI, for example, saw big increases due to U.S. companies setting up assembly facilities in Mexico. FDI flows from the U.S. to Mexico increased by a factor of six in the post-NAFTA era. The U.S., however, only experienced a modest increase in FDI inflows from Mexico. The same could be said for NAFTA’s impact on U.S. GDP, which Gamso and Grosse say was “very marginally influenced by NAFTA, given the much greater impacts of technology change and of trade with China during the second half of the 1990s and the early 2000’s. While the most common criticisms of NAFTA cite job losses in the automotive and agricultural sectors, the overall numbers are more complicated. The distribution of U.S. GDP by sector was not noticeably affected by NAFTA, despite the jobs lost in auto assembly and agricultural products such as sugar and avocados. “This is because other jobs were gained in those same sectors, in auto design, production of components, and sales and service,” Gamso and Grosse write. “And in agriculture, U.S. jobs were winter 2018
