December 8, 1993 – NAFTA Signed Into Law

The North American Free Trade Agreement (NAFTA) was signed into law by President Bill Clinton on this date in history. NAFTA, a trade pact between the United States, Canada, and Mexico, eliminated virtually all tariffs and trade restrictions among the three nations. However, no protections were contained in the core of the agreement to maintain labor or environmental standards. As a result, NAFTA tilted the economic playing field in favor of investors, and against workers and the environment, resulting in a hemispheric “race to the bottom” in wages and environmental quality in the United States, Canada, and Mexico.

Credit: McGraw-Hill Education/Mike Wirth

Americans were promised that NAFTA would generate large numbers of net new good jobs. According to the Council on Foreign Relations, economists largely agree that NAFTA provided benefits to the North American economies. Regional trade increased sharply over the treaty’s first two decades, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Cross-border investment also surged, with U.S. foreign direct investment (FDI) stock in Mexico increasing in that period from $15 billion to more than $100 billion. But there have also been downsides.

Mexican employment did increase, but much of it in low-wage “maquiladora” industries. These are plants that moved to this region in Mexico from the U.S. near the border. U.S. companies were ecstatic to find that they could pay much lower wages to Mexicans. Mexican women work for approximately one-sixth of the U.S. hourly rate. The income one receives from work in a maquiladora is rarely enough to support a family.

Map of Mexico’s maquiladora plants from The Cutting Edge

In addition, the dense number of maquiladoras and the inability of Mexico’s environmental regulatory program to keep up with the rapid growth of the industry over the past quarter of a century have contributed to major environmental problems. Both the United States and Mexican governments claim to be committed to environmental protection, yet environmental policies have not always been enforced. Some companies avoid paying disposal costs by dumping toxins and other waste into Mexico’s rivers or deserts. The United States Environmental Protection Agency reports that only 91 of the 600 maquiladoras located along the Texas-Mexico border have disposed of waste properly. But the women who work at the maquiladoras and live nearby have children who must then grow up and play in contaminated areas. (You can read more details about the hazardous waste problems here.)

Unfortunately, there were additional dangers for female workers. As reported by a Federal Advisory Committee to the U.S. Environmental Protection Agency:

“Female workers at maquiladoras face especially serious problems. They often work in an atmosphere that includes sexual assault, violence, wage inequality, and discrimination against pregnant women.”

The continued willingness every year of hundreds of thousands of Mexican citizens to risk their lives crossing the border to the United States because they cannot make a living at home is in itself testimony to the failure of NAFTA to deliver on the promises of its promoters.

Defenders of NAFTA have two main responses. One is that the low pay given to workers abroad is still more than they could have earned without NAFTA. But it is still mistreatment, and still not a living wage. CEOs back in the U.S. who make this argument make it from their corner offices in air-conditioned high rises with floor-to-ceiling window views of their corporate fiefdoms. They would never live or work in the depressed conditions that end up supporting their lifestyles.

Political cartoon by Nick Anderson / The Houston Chronicle.

Supporters of NAFTA also argue that the problems of inequality are largely the result of domestic policies and have nothing to do with globalization. Yet that ignores the enormous increase in bargaining leverage over all workers provided by the ability to shift production out of the country.

As researchers at the Economic Policy Institute argue:

The reality is that the denial of social protections in the rules of an internationally integrated market inevitably undermines the protections established in the previously separate domestic economies after decades of political struggle. In that sense, the ‘vision’ of NAFTA is profoundly reactionary: it pushes nations back toward a 19th century ideology in which government’s economic function is to protect the interests of investors, while working people — the overwhelming majority in each nation — are left to fend for themselves.”

President Trump asserted NAFTA undermined U.S. jobs and manufacturing, but the Council of Foreign Relations pointed out that while economists acknowledge troubles with U.S. manufacturing, they claim it had little to do with NAFTA. They cited effects of competition with China as well as technological changes, such as increasing automation.

Nevertheless, in October, 2018, President Trump struck a deal with Canada and Mexico for an updated version of the pact, to be known as the U.S.-Mexico-Canada Agreement, or USMCA. The pact entered into force on July 1, 2020.

In the updated agreement, taking up 2,082 pages, the parties settled on a number of changes. Rules of origin for the auto industry were tightened, requiring 75 percent of each vehicle to originate in the member countries, up from 62.5 percent. New labor stipulations were added, requiring 40 percent of each vehicle to come from factories paying at least $16 an hour. Trump backed down on his threats to apply tariffs on Canadian and Mexican auto imports; the existing steel and aluminum tariffs, however, were not lifted. Meanwhile, protections for U.S. pharmaceuticals and other intellectual property were strengthened. You can read more about its provisions here.

An analysis published by Wharton School of Business was generally favorable about the new deal, with Wharton legal studies and business ethics professor Philip Nichols describing the USMCA as “a shockingly reasonable agreement given President Trump’s professed disdain for reasonable trade agreements.”

You can also read a Congressional Research Service report on the USMCA, here.