Friday, November 18, 2016

The NAFTA Blues

Donald Trump won votes by promising to rip up the North American Free Trade Agreement (NAFTA). There is some truth in the argument that it has been damaging to hard-working American families. But Trump has it topsy-turvy. NAFTA was introduced in 1994 and within a matter of few years it was clear that it was a disaster for many poor Mexican families and was forcing them to migrate.

It did bring “assembly” manufacturing to Mexico – the sector that has been blamed so much for undermining US factories – in which foreign companies were allowed to import materials duty- and tariff-free for processing in factories near the border with the US, before re-exporting them back to their originating country. It makes substantial profits for US corporations using the cheap labour, just as the free trade agreement intended, but wages for those employed to do the work were insufficient to support a family. By 2001 Mexico was losing manufacturing jobs to China, with its even lower wages. It could only benefit if its own people’s wages remained impossibly low.

When NAFTA was signed, around 18 million Mexicans depended on corn production for their livelihoods. Tortillas, made from corn flour, are the country’s staple food. In the first two years imports of corn from the US doubled. US subsidies to corn production accounts for about $10 billion a year. So US exporters, dominated by a handful of giant grain traders, were able to sell corn on the Mexican market at artificially low prices, decimating three million local producers. 

In theory, the fall in prices should at least have helped the mass of urban poor; but it didn’t. In fact, tortilla prices went up sevenfold – as part of the agreed liberalisation the Mexican government was required to remove some of its supports that kept tortilla prices cheap in government stores. The biggest beneficiaries of the fall in corn prices were the two large processors that dominated the Mexican market. American transnationals and local Mexican elites got richer. The poor got poorer. The transnationals park their profits offshore in tax-haven subsidiaries. 1.3 million Mexicans were driven off the land by NAFTA and many became illegal workers in the US. They work for poverty wages in conditions local Americans will not tolerate.

People are angry but at the wrong target.