NAFTA dreams sag with the peso While U.S. awaits Mexico's recovery, jobs trickle south

October 08, 1995|By CARL M. CANNON | CARL M. CANNON,SUN NATIONAL STAFF

WASHINGTON -- Two years ago, an alliance that included President Clinton, three former presidents and the business community predicted that if Congress passed the North American Free Trade Agreement, the jobs created in the United States would be better, higher paying and more numerous than the jobs lost.

Today, however, trade statistics paint a picture that is nearly the opposite of what Mr. Clinton or any NAFTA's champions had envisioned.

Before passage of the treaty -- and before the collapse of the Mexican peso a year later -- the United States had a trade surplus with Mexico. Now there is a trade deficit that will be about $16 billion by year's end.

"It's exactly the reverse of what the proponents said would happen," said Mark Anderson of the AFL-CIO, "and eerily similar to what we said would happen."

One NAFTA supporter, Greg Mastel, vice president of the Economic Strategy Institute, a nonpartisan think tank, concedes that backers made unrealistic predictions, but insists that the accord's promise eventually will be fulfilled.

"You can't just look at the short run," Mr. Mastel said. "In the long term, the dropping of tariffs and other barriers will increase American exports. It hasn't yet because the Mexican economy has been in the tank. But Mexico will eventually recover from this recession."

NAFTA supporters had said that up to 150,000 American jobs would be lost in the first few years of the agreement, but they insisted that these losses would be swiftly offset by as many as 350,00 new, higher-wage jobs fueled by increased exports to Mexico.

Administration officials now say that the creation of such high-end jobs is a long-term proposition. The bottom line so far is that no new jobs have been created -- and the estimate of lost jobs might have been low.

The U.S. Department of Labor already has certified 41,201 Americans for assistance because they lost their jobs as a result of trade with Mexico or Canada, also a signatory to NAFTA. Thousands more claims are pending. Others -- the Labor Department isn't sure how many -- have applied for assistance under a related program.

Effect of peso's plunge

Most trade experts agree that the sharp drop in the peso was a bigger factor than NAFTA. Overnight, Mexican labor became much cheaper for those wishing to expand operations. At the same time, American goods became unaffordable for most Mexicans.

But some economists say NAFTA played a crucial role in the drop of the peso: that, because the administration and the Mexican government were so eager to get NAFTA approved, they ignored signs that the peso was dangerously overvalued and that Mexico was borrowing too much in relation to the goods and services it produced.

"When everybody said, 'We're going to get rich because of NAFTA,' they were looking at a mirage created in part by an overvalued currency," says Thea M. Lee, an economist with the pro-labor Economic Policy Institute. "But everybody kept quiet."

At a recent luncheon, Mr. Clinton offered a counter-argument. Because of NAFTA, he said, the peso devaluation didn't hit the United States as hard as it otherwise would have.

Many NAFTA backers agree, saying that because of the treaty, Mexico couldn't do what it traditionally had done in a recession: raise tariffs even higher.

"If you look at 10 years from now, 20 years from now, 25 years from now, it is plainly the right thing to do," Mr. Clinton said. "A strong, stable, healthy, democratic Mexico with a sensible economy is plainly in our interest."

The president also said that the United States eventually must replace low-wage manufacturing jobs with jobs that require more skill and training. Many independent economists agree, even if the recent trade figures make them nervous.

Washington economist Jeffrey Schott, co-author of one of the rosiest pre-NAFTA predictions, says the potential benefits were oversold. Mr. Schott's estimate that NAFTA could create a net of 170,000 new jobs by 1995 was widely touted by the Clinton administration -- and was rounded off to 200,000 -- but important caveats were lost along the way.

For one, Mr. Schott wrote that his estimate was based on the continuation of "stable economic conditions" in Mexico. Moreover, he made his projection in 1990, meaning it was a five-year projection, not a two-year one.

"The jobs issue was grossly exaggerated by both the proponents and the critics," said Mr. Schott, who regrets the emphasis put on his estimate, but not the passage of NAFTA itself.

"The debate was so superficial," said Carol Wise, a professor at the Johns Hopkins School of Advanced International Studies. "We were licking our chops at all the American products Mexican consumers were supposedly going to buy.

But that country is capital-scarce, and those consumers don't have any money."

Holding the tomatoes

A case in point is the California Tomato Board, which projected that exports would grow from 7,000 metric tons in 1993 to 17,000 tons this year. Instead, they've trickled to almost nothing.

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