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Yusen, We Have a Problem!: NAFTA, What Are You After?

Posted By Administration, Thursday, April 6, 2017
Updated: Wednesday, April 5, 2017

by Kirk White, Yusen Logistics (Americas) Inc.

January 1, 1994, The North American Free Trade Agreement (NAFTA, to its friends) went into effect. A truly bipartisan effort, it was brokered by George H.W. Bush and implemented by Bill Clinton. It has proven to be a controversial agreement – economists say it's great for business, businesses say it's bad for manufacturing, manufacturers say it's tricky for labor, and labor says "Please don't move our plants to Mexico." The new President has called it the "single worst trade deal ever" and has vowed to either renegotiate or abandon it.

A document provided by the Congressional Research Service on February 22, 2017 made comparisons to the effect of withdrawing from the Trans-Pacific Partnership (TPP) with the future state of NAFTA. Many of the countries originally negotiating TPP have decided to move forward with trade alliances that do not include the United States. Should the U.S. withdraw from NAFTA, there are concerns Mexico and Canada may negotiate separate free trade agreements with other countries, including China, which may have long term effects on the United States' being able to compete in certain markets.

The plan has its critics and its fans and one's opinion certainly depends upon where on the supply chain one finds oneself and, even more confusingly, the facts seem to support both sides of the coin – the economy has improved (a little) since its implementation, but factories and jobs, like Elvis, seem to have left the building.

Further confounding the aura of NAFTA is that many don't fully understand it. An impromptu, informal survey showed this author that the average citizen doesn't know much about NAFTA – none could fully explain the agreement, several couldn't define the acronym (even with prompting), a few didn't know which countries were involved, and there were a couple that didn't know it existed.

With battle lines clearly drawn – jobs vs. economy – and no clear indication as to how the new administration sees the future of NAFTA, it is a fascinating time to take a closer look at this agreement.

The very first line of NAFTA asserts that the governments of Canada, Mexico and the United States "resolve to strengthen the special bonds of friendship and cooperation among their nations," and pretty much everything after that has been subject to controversy. Champions of the measure lauded that the agreement would make the U.S. more competitive globally by reducing production costs, help build and strengthen the developing Mexican economy, and decrease some of the undocumented immigrant issues by providing gainful employment in Mexico. Finally, combining the three nations into one "common trade agenda" would benefit the region as a whole with regard to growth and opportunity.

Opponents countered with the fear of massive job losses in the United States. Then presidential candidate, Ross Perot, famously quipped that if NAFTA were signed into law, there would be a "giant sucking sound" of jobs going south to Mexico.

These arguments have continued for the twenty-three years NAFTA has been in effect, but are they valid? Certainly enough time has passed so that real, empirical data can be collected and analyzed. Who gets to say "I told you so" at the bar next week?

Turns out…BOTH.

Both sides are correct, sort of…

The economy did benefit from the agreement, sort of…

U.S. workers did lose jobs to Mexico, maybe…

One industry that has definitely benefited is the auto industry. NAFTA removed Mexico's protectionist automobile degrees – 25% tariffs on imports, prohibition on importing finished vehicles, requirements of specific exports for every dollar in imports – and business began to boom. Exports to Mexico increased by 262% and imports from Mexico grew a whopping 765% in the twenty three years since the agreement was implemented (CRS pg 17). However, despite this incredible boon, the overall economic effect is still minimal as U.S. exports to Canada and Mexico only amount to less than 5% GDP (CRS pg 15).

When the subject of job loss and wage depletion comes up, the answers are harder to come by and often based on which argument one is already making. A study by the Economic Policy Institute (mostly funded by labor unions) says that 700,000+ jobs have been lost to Mexico since NAFTA came into the fold. claims that 25 million jobs have been created since NAFTA. Beyond those two outliers, most analyses concur that job loss and economic growth have been minimal. The International Trade Commission reports that NAFTA had "essentially no effect on real wages in the United States" (CRS pg 16). The Congressional Research Service concludes that "any changes in trade patterns would not be expected to be significant in relation to the overall U.S. economy" (CRS pg 15). And a 2014 report by Yale University and The Federal Reserve concludes that basically everyone is slightly better off.

And this doesn't even broach the fact that U.S. trade with Canada and Mexico was already increasing before NAFTA and would likely have continued if it had never existed. Food for thought.

It will be very interesting to follow the developments with this agreement as the next few months unfold. The President won't be able to enter into formal negotiations without a 90 day notice to Congress, which, as of this writing, hasn't been given.

[1] Wall Street Journal, "Ross Confirmed as Commerce Secretary" Tuesday February 28th, 2017
[2] Congressional Research Service (CRS): "The North American Free Trade Agreement (NAFTA)" February 22, 2017

Kirk White has worked in every division of Yusen Logistics. After a brief stint in Transportation, he transferred to Corporate, where he coordinated Yusen's Employee Empowered Kaizen system and served as a Specialist for the Business Process Re-engineering group, after which he moved to the Warehouse division to serve as the East Coast Quality Manger before ultimately joining the International division, where he hopes to use his Quality knowledge base to prove an asset to OCM.

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