LTU panel praises NAFTA, but says more must be done to help dislocated workers

Release Date: September 22, 2016

President's Symposium

At 22 years of age, the North American Free Trade Agreement is a proven winner overall for the economies of Canada, Mexico, and the United States, creating millions of jobs and lifting millions out of poverty in Mexico, a panel of economic experts said Wednesday night at Lawrence Technological University.

But panelists also said more should be done to help those left behind by the disappearance of high-wage, low-skill jobs in the United States – a trend that isn’t only the fault of NAFTA, but of overall economic globalization.

The NAFTA discussion took place Wednesday night at the fifth annual Lawrence Tech President’s Symposium. LTU President Virinder Moudgil established the symposium in 2012 to tackle important social, economic and scientific issues of the day. And talking NAFTA could hardly be timelier, since global trade has emerged as a major issue in the 2012 presidential race.

Panelist Juan Manuel Solana Morales, consul of Mexico in Detroit, said his country experienced wrenching economic dislocation wrought by NAFTA and other policy changes through the 1980s, 1990s and 2000s. But today, he said, “Mexico has a middle class,” and 60 percent of families in the country are living above the poverty level, compared to 20 percent in the 1970s. And the Mexican automobile market is now 1.8 million vehicles a year, compared to 300,000 a year before NAFTA.

Panelist Paul Traub, senior business economist for the Federal Reserve Bank of Chicago, used his own career to illustrate the choppy waters of the global economy. Losing jobs with Bell Telephone after the antitrust breakup of the Bell System, and with Chrysler during an economic crisis, he continued his education and got a job with the Fed, where, he joked, “if we go bankrupt, you are all in trouble.”

Traub also provided serious figures – he said international trade between the U.S. and Canada has increased 2.5 times since NAFTA, and with Mexico 6.5 times – but there’s also the minor matter of China emerging as a global trade power during that period. Trade between the U.S. and China has increased 12 times since NAFTA went into effect in 1994.

Traub said the U.S. and Mexico have added proportionately almost the same number of jobs since NAFTA, but the nature of those jobs has changed. And he said U.S. wage growth hasn’t been stagnant just because of NAFTA, but also because of pressures from Chinese and other competition.

George said it’s natural to have “mixed views on NAFTA in all countries, but there are real and lasting benefits for all three partners.” Trade between the three nations is up from $289 billion in 1993 to $1.3 trillion today.

Edward Alden, Bernard L. Schwartz Senior Fellow at the bipartisan think tank Council on Foreign Relations in Washington, D.C., said NAFTA – and the currently pending Trans-Pacific Partnership trade deal with Asian nations – became controversial because the U.S. hasn’t done a good job of anticipating global economic changes since the 1970s.

Times were great in the U.S. in the 1950s and 1960s, he said, because the U.S. was the only surviving intact industrial economy after World War II. “We made everything for ourselves,” he said. “The only countries that traded (internationally) less were the Communist countries, Russia and China.”

That changed as the global economy rebuilt, Alden said. And the government has known this was coming for a long time, citing a memo President Richard Nixon got way back in 1971, pointing out that the global economy was about to get much more competitive.

That hit home with the Japanese car boom in the mid-1970s and has continued since, especially with the U.S. pursuing free trade policies with countries with much lower wage rates, like China and Mexico.

“I agree on balance NAFTA was a good deal for America,” Alden said. “We get cheaper washing machines, cheaper dryers, cheaper TVs, cheaper prices on all sorts of goods. But there have been significant, concentrated impacts on certain sectors, and nobody has seen that more than Michigan. NAFTA cost us two million jobs. That could be viewed as a drop in the bucket. But the problem is, many of those jobs were jobs that provided a good income for people of modest education.”

Panelists said that simply slapping tariffs on imported goods, as Republican presidential nominee Donald Trump has promised to do, will only shrink the U.S. economy and won’t bring factories back home. “You cannot go back to where we were in the 1950s and ‘60s,” Alden said. “We have to find a way to move forward. We need a comprehensive strategy to create more jobs in the fastest growing areas … and we’ve never really done that.”

Alden pointed out that the U.S. has been trying to provide retraining and relocation assistance to workers dislocated by foreign economic competition since the early 1960s, but “the programs have always been tiny.” Traub said Denmark spends 2 percent of its GDP on such programs; the U.S. spends 0.1 percent. Traub also said individuals have the obligation to seek out retraining when they see their industries declining.

Alden and George, who spent part of his career negotiating trade deals for Canada, said transparency has greatly increased in the negotiation of trade deals, with the entire TPP agreement available for public reading online.

And Alden and Traub said they’re troubled by provisions of trade deals like the TPP that let corporations sue nations over lost profits stemming from policy decisions like stricter pollution laws. The Canadian company that wanted to build the Keystone XL pipeline is now suing the United States under NAFTA, after President Barack Obama quashed the pipeline on environmental grounds.

 Wednesday night’s discussion was moderated by Thomas Marx, director of the Senior Service College Fellowship Program and the Center for Leadership in LTU’s College of Management.

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