Fracaso: NAFTA’s Disproportionate Damage to U.S. Latino and Mexican Working People

Neither Neoliberal Business-As-Usual Trade Policy nor Trump’s Economic Nationalism Is the Way Forward for NAFTA 2.0

By Public Citizen’s Global Trade Watch and the Labor Council for Latin American Advancement

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U.S., Mexican and Canadian unions and consumer, faith and environmental groups that fought against the North American Free Trade Agreement’s (NAFTA) enactment have documented decades of NAFTA damage in the three nations. As a candidate, Donald Trump hijacked progressives’ critique of NAFTA’s ongoing job outsourcing to win working class support with promises to renegotiate or end NAFTA.

NAFTA renegotiation remains a work in progress, with improvements needed if a final deal is to ameliorate NAFTA’s continuing, serious damage to people across North America.

While NAFTA harmed many U.S. workers, Trump’s xenophobic narrative about NAFTA is entirely wrongheaded. An examination of NAFTA’s history and its outcomes presented in this report make clear that Trump’s notion of NAFTA as a plot by Mexico to hurt U.S. workers is absurd. NAFTA was the brainchild of U.S. presidents, was negotiated with input from hundreds of U.S. corporate trade advisors, and has been devastating to working people in both Mexico and the United States.

Instead of the higher wages promised, in real terms average annual Mexican wages are down 2 percent, and the minimum wage is down 14 percent from pre-NAFTA levels with manufacturing wages now 40 percent lower than in China. Millions of Mexican farmers lost their livelihoods as NAFTA eliminated policies protecting small farmers, but did not discipline U.S. farm subsidies. The economic havoc NAFTA caused became a major push factor in increased Mexican migration to the United States.

The way forward is neither NAFTA’s failed neoliberalism nor Trump’s hateful nationalism.

Almost one million U.S. jobs have been certified as lost to NAFTA under the Trade Adjustment Assistance (TAA) program that undercounts NAFTA job loss. U.S. median wages are stagnant, and 40 percent of manufacturing workers who lose jobs to trade face major pay cuts if they find new employment. As this report documents, among U.S. workers hurt by NAFTA, Latino workers have suffered disproportionate injury.

In this report, building on decades of the Labor Council for Latin American Advancement’s (LCLAA) advocacy for Latinos and Public Citizen’s research on the impacts of U.S. trade policy, we focus on the impact of NAFTA on U.S. Latinos and Mexican working people:

  • NAFTA’s U.S. economic damage has been greatest in regions where the Latino population is concentrated. The 15 states where 85 percent of Latinos reside account for nearly half (46 percent) of the more than 950,000 NAFTA job losses certified under the TAA program.
  • Latino workers were disproportionately represented in the light manufacturing industries hit hardest by the outsourcing NAFTA incentivized and Latinos lost 138,000 jobs in the apparel and textile sector.
  • As NAFTA eliminated U.S. manufacturing jobs, the related wage stagnation for workers without college educations across all industries hit Latinos asymmetrically. Rather than the Latino-white pay gap closing, it increased during the NAFTA years. Latinos comprise 23 percent of workers in non-professional sectors such as leisure and hospitality, compared to 17 percent of the overall U.S. workforce. As increasing numbers of trade-displaced workers joined the glut of workers competing for these non-offshorable jobs, real wages have been flat in these growing sectors.
  • For Mexican workers, increased investment and trade with the United States failed to translate into per capita income growth or rising wages in Mexico. Annual per capita income grew less than 2 percent in the first seven years of NAFTA and less than 1 percent thereafter.
  • Real average annual wages have declined in Mexico under NAFTA, contrary to the promises by NAFTA supporters that the pact would raise Mexicans’ living standards. Overall, in real terms average annual Mexican wages are down 2 percent, and the minimum wage is down 14 percent from pre-NAFTA levels. According to analysis by Bank of America/Merrill Lynch, manufacturing wages in Mexico are now 40 percent lower than in China. Prior to NAFTA, Mexican auto wages were five times lower than in the United States. Today, even as U.S. wages stagnated, Mexican auto wages are nine times lower.
  • Even as NAFTA made it cheaper and less risky to outsource hundreds of thousands of jobs from the United States to Mexico, and U.S. firms continued to build new high tech multi-million-dollar manufacturing plants in Mexico, the number of manufacturing jobs (which pay more) as a share of total Mexican employment dropped from 20 to 15 percent. A United Nations Economic Commission for Latin America and the Caribbean (ECLAC) study found the loss of Mexican manufacturing related to China’s 2001 entry into the World Trade Organization (WTO) includes almost 50 percent of jobs in the yarn-textile-garment chain, furniture and toy production sectors.
  • NAFTA devastated Mexico’s rural sector. Amid a NAFTA-spurred influx of subsidized U.S. corn, about 2 million Mexicans engaged in farming and related work lost their livelihoods.
  • With millions of Mexicans displaced from rural communities competing for the hundreds of thousands of new manufacturing jobs outsourced from the United States, and a lack of independent unions in Mexico to bargain for better wages, employers could keep wages reprehensibly low.
  • As NAFTA destroyed Mexican livelihoods and displaced millions in rural Mexico, it became a powerful push factor for migration. From 1993, the year before NAFTA began, to 2000, annual immigration from Mexico increased from 370,000 to 770,000. With annual immigration on the rise, the total number of undocumented immigrants from Mexico living in the United States increased from about 2.9 million in 1995 to 4.5 million in 2000 to 6.9 million by 2007 when the financial crisis limited job opportunities and slowed migration rates.
  • Tens of thousands of Mexican migrants who survived the perilous border crossing ended up working as seasonal crop workers in the United States. Over half have now been working in such farm jobs for over a decade. Others found work in landscaping, construction, food services and personal services and, even before the Trump administration’s attacks on immigrants, were some of the most vulnerable workers in the U.S. economy.
  • Nearly 28,000 small- and medium-sized Mexican businesses were destroyed in NAFTA’s first four years alone, spurring the El Barzon movement of formerly middle-class Mexican entrepreneurs protesting NAFTA. Losses included many retail, food processing and light manufacturing firms that were displaced by NAFTA’s new opening for U.S. big-box retailers that sold goods imported from Asia.

The data on NAFTA’s negative effect on working people in both countries upend Trump’s NAFTA narrative pitting U.S. workers against their Mexican counterparts and underscore why NAFTA must be replaced. After a year of renegotiations, the September 30, 2018 publication of a NAFTA 2.0 text revealed some improvements, some damaging new terms and much important unfinished business. The NAFTA 2.0 text that Mexico, Canada and the United States signed at the end of November will not stop NAFTA’s ongoing job outsourcing or downward pressure on wages in Mexico and the United States. That the Donald Trump, Justin Trudeau and Enrique Peña Nieto administrations did not deliver a transformational replacement of the corporate-rigged trade-pact model that NAFTA hatched in the early 1990s is no surprise. However, if the pact’s labor standards can be made subject to swift and certain enforcement — and other key improvements are made — then the final package expected to head to Congress in 2019 could stop some of NAFTA’s continuing, serious damage to people across North America.