When Donald Trump threatened to “break” the North American Free Trade Agreement, auto
industry workers offered up some of the loudest cheers.
Mr. Trump easily won the Republican
primary in Michigan this month. The state, home base for the American auto
industry, also delivered an upset victory to Bernie Sanders, the Democratic
anti-Nafta standard-bearer.
But the autoworkers’ animosity is
aiming at the wrong target. There are still more than 800,000 jobs in the
American auto sector. And there is a good case to be made that without Nafta,
there might not be much left of Detroit at all.
“Without the ability to move
lower-wage jobs to Mexico we would have lost the whole industry,”
said Gordon Hanson of the University of California, San Diego, who has been
studying the impact of Nafta on industries and workers since its inception more
than two decades ago.
Even in the narrowest sense — to
protect jobs in car assembly plants — a wall of tariffs against America’s
southern neighbor would probably do more harm than good.
To be sure, Rust Belt voters drawn
to Mr. Trump and Mr. Sanders are not wrong to be angry. Trade and the deals to
reduce trade barriers often threaten the livelihood of workers in the
industries exposed most directly to foreign competition.
In the home of the once proud Big
Three carmakers, which virtually owned the American car market through most of
the 20th century, the issue is personal. Nafta put them in direct competition
with Mexican workers earning little more than one-fifth of their compensation.
The American trade deficit in autos
and parts tripled in the two decades after the trade deal struck with Mexico
and Canada took effect in 1994, to about $130 billion in 2013. The industry
lost 350,000 jobs, or about a third of its workers, over the period.
“It was a massive shift in a
flagship industry,” said Thea Lee, deputy chief of staff of the A.F.L.-C.I.O.
Workers, she said, were promised
one thing but got another. “One thing you need to understand about why
working-class people are so cynical about these trade agreements,” Ms. Lee
said, “is that every time we had these big debates, and they heard these
optimistic projections and it never turned out the way they were told it would
be.”
Still, for all the brickbats thrown
at it, the Nafta trade deal itself had a relatively
modest impact, most studies agree. For one thing, the Mexican
economy is still tiny compared with that of the United States and its trade
surplus has remained relatively small.
China, where workers were even
cheaper and which has attracted far more foreign investment in manufacturing,
ultimately bumped Mexico out of many American markets after Beijing entered the
World Trade Organization in 2001.
Nafta is often blamed for dynamics
that are not of its making. The surge of Mexican exports in the 1990s was
propelled by a sharp devaluation of the peso, which set off the so-called
Tequila Crisis. The wave of immigration from Mexico into the United States,
which lasted until 2005, was driven by a decline in government subsidies to
farmers and an economic collapse that occurred just as millions of young
Mexicans were entering their late teens and were desperate for jobs.
Luis Rubio, who heads the Center of
Research for Development in Mexico City — known as CIDAC for its spelling in
Spanish — complains that Nafta gets the blame for the whole package of
globalization and breakneck technological change that took off more or less at
the same time.
“Nafta is also blamed for lots of
things that are actually because of competition with China,” he told me.
The truth is that autoworkers in
Detroit were not just competing with cheap workers in Mexico. They were also
competing with American workers in the union-averse South, where many car
companies set up shop. They were competing with robots and more efficient
Japanese and Korean automakers.
Detroit responded by cutting as
many costly factory jobs as it could. But value added by the car and car-parts
makers in the United States is only slightly lower than it was in 1993.
The integration of production
across countries with complementary labor forces — cheaper workers in Mexico to
perform many basic tasks, with more highly paid and productive engineers and
workers in the United States — turned out to play a central role in reviving the auto industry
in North America.
In the final analysis, Nafta might
have saved hundreds of thousands of jobs. By offering a low-wage platform,
Mexican plants increased the scale of production in North America, allowing
domestic and foreign automakers to amortize their large fixed costs. Carmakers
and parts suppliers tend to cluster relatively close together. So assembly
plants in Mexico help sustain a robust auto-parts industry across North
America.
The Honda CR-V assembled in El Salto, Jalisco, for
example, uses an American-made motor and transmission. Roughly 70 percent of
its content is either American or Canadian, according to government statistics.
This regional integration gave the
United States-based auto industry a competitive edge that was critical to its
survival. “There was a concern 20 years ago that an auto industry production
chain would develop across Asia, including China and Taiwan and Southeast
Asia,” Professor Hanson said. “Maybe Nafta saved us from that.”
Nafta is now at a critical
juncture. The Chinese manufacturing behemoth that squeezed Mexico out of so many markets over
the past 15 years seems to be losing some of its power.
As China’s wages rise, it is
offering Mexico another shot at gaining North American market share, perhaps
even at achieving Nafta’s unfulfilled promise to help Mexico get rich.
Robust North American trade is also
critical to the United States. If Mexico achieved significantly higher living
standards, Mr. Trump could save the money for his border wall. Already fewer
Mexican migrants are coming to the United States than going. Were Mexico
richer, the flows back home to Mexico would probably be greater.
And if the real concern is China —
another target of Mr. Trump’s ire — a truly integrated North American market
would help keep it at bay.
The auto industry remains a bright
spot.
“Every auto manufacturer is setting
up shop in Mexico,” said Eugenio Sevilla-Sacasa, vice president for
international supply chain operations and cross-border logistics at Ryder,
whose trucks cross the border between Mexico and the United States 150,000
times a year. “Ford, G.M. and Chrysler but also Toyota, Mazda, Honda,
Mercedes-Benz, Kia.”
And it’s no longer just about cars.
Mexico is trying to get into the aerospace production chain,
too. Over the past few years, Bombardier, Cessna and Hawker Beechcraft have set
up shop there, among others. Just as Michigan’s autoworkers might thank Nafta
for keeping China from taking over the global auto industry, aerospace workers
might one day have Nafta to thank for keeping the Chinese out, too.
“It’s exactly the wrong time to
blow up Nafta,” Professor Hanson argued. “We would be doing China an enormous
favor.”
Email: eporter@nytimes.com; Twitter:
@portereduardo
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