Free Trade With Mexico: Gain, Pain, Retrain
When the fortunes of your neighbor, especially a neighbor who has been poor, begin to improve, you might smile at your neighbor's good fortune. But if you believe that the gain is owing to your loss, it's natural to feel less than charitable about the trade-off. The United Auto Workers looks at plant closings and job losses at home, compares them with factory openings and job gains in Mexico, and makes a simple calculation: Mexican workers are gaining at U.S. workers' expense, and so free trade is bad. Thanks in large part to the stunning successes of Detroit South, opposition to the planned North American Free Trade Agreement is growing.
But free trade is not now and never has been a zero-sum game. Since World War II, rising trade has helped drive economic development and growth around the world. Experts believe that a free-trade agreement that pulls Mexico into the North American fold, accompanied by further economic reform in Mexico, will have similarly salutary effects: According to a recent study published by the Institute for International Economics in Washington, about 130,000 net new jobs should be created in the U.S. by 1995, thanks to increased demand for U.S. goods from Mexico. Meanwhile, 600,000 new jobs should be generated in Mexico.
But the gain in U.S. jobs will come only after 112,000 jobs are lost. This "dislocation," as economists call it, is a natural and expected consequence of expanding trade. More trade means more competition, and competition points up the differences in costs and quality between manufacturers and across borders. Mexican auto workers are not only far cheaper to employ than U.S. auto workers, but they have also shown that they can produce high-quality products.
The lesson of Detroit South is twofold. First, auto makers and auto workers alike must redouble their efforts to bring quality and efficiency improvements to U.S. plants. Second, U.S. workers who do lose their jobs should be granted generous assistance for retraining so they may qualify for new jobs. Yet President Bush's fiscal budget for 1993 calls for the elimination of the Trade Adjustment Assistance program. If the Administration hopes to make a convincing case for North American free trade, it should not overlook the needs of job-losers at home.