“You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur “
Ronald J. Hansen , The Republic | azcentral.com 6:02 a.m. MT March 13, 2017
NAFTA was signed in 1994 between the United States, Canada and Mexico to eliminate tariffs and establish the freest possible trade between the three countries.
President Donald Trump has called the North American Free Trade Agreement the nation’s “worst trade deal ever.” His vow to revisit the deal helped him win Rust Belt states such as Ohio, Michigan, Wisconsin and Pennsylvania.
But that position may find a softer reception among Arizona’s Republicans.
While NAFTA still packs a political punch, its economic effects are more nuanced. And by many accounts, Arizona has fared better under the deal than the nation as a whole, though its effects here are still debated.
That debate is likely to intensify in the coming months. U.S. Commerce Secretary Wilbur Ross said last week that he wants to begin renegotiating the North American Free Trade Agreement with Mexico and Canada in about 90 days. He said he would notify Congress of his plans in the next “couple of weeks.”
NAFTA is seen as having strengthened trade ties between the North American countries and helped lower the price of consumer goods. Its critics say the deal has also held down U.S. wages without ensuring better working conditions in Mexico.
It’s a complex deal where perhaps the clearest wins have been in Mexico and the clearest losses in America’s Rust Belt. In between, however, there are harder-to-quantify benefits and hidden costs.
“It is not simple,” said Arnold Maltz, an associate professor of supply-chain management at Arizona State University’s W.P. Carey School of Business. “I believe that on balance we’re better off because of NAFTA. … There is a significant amount of business that still comes through Arizona because of Mexico.”
Perhaps, but that could slip away over time, said Lori Wallach, director of global-trade watch for Public Citizen, an advocate for workers.
“I think the trend lines for Arizona under NAFTA are really worrying. You’re not getting slaughtered right now, but your trade surplus in manufacturing and ores is going down. Your trade deficit in agriculture is going up. If it continues … in short order you’re going to have a net loss. That is more or less what most states are suffering.”
Growing in Mexico
Produce from Sinaloa is trucked through Nogales, creating distribution jobs in the Arizona town. High-value parts made in Nogales and Douglas are shipped to maquiladoras, the U.S.-owned factories in Mexico, for assembly. Yuma has agricultural commerce on both sides of the border and Tucson has business partnerships due to NAFTA, Maltz said.
The automotive business has been booming in Mexico, in part with some Arizona supplies, Maltz said. Companies like Raytheon and Intel also provide Arizona engineers for work in Mexico.
“The border states have done really quite well from NAFTA,” said Gary Hufbauer, a scholar on international law and trade at the Peterson Institute for International Economics.
Economists have elaborate equations to estimate the impact that trade deals have on the public. Those have to stand against stark reports like plant closings that draw a simple, straight line, often to Mexico.
“NAFTA has more than doubled what trade would have otherwise been. We calculate for the nation as a whole the extra trade with Mexico is worth about $400 a household. For Arizona, New Mexico, Texas and Southern California, the gain would probably be much larger because the trade with Mexico is more intense,” he said. “Those are the benefits, whereas the losses tend to be concentrated in firms that have closed and people are thrown out of work.”
Proximity to the border
Over the life of the deal, NAFTA has helped create some business opportunities that have helped Arizona because of its proximity to the border.
TPI Composites, a business that began in 1968 making powerboats in Rhode Island, changed the company’s focus to wind turbines after winning a major contract with Mitsubishi in 2001.
To make the turbines needed for that deal, TPI opened a manufacturing plant in Juarez, Mexico, where the labor costs were far lower. In 2007, the company’s executives relocated the headquarters to Scottsdale, bringing them closer to their international operations.
TPI has continued to grow. It has added facilities in China and Turkey, but also in Iowa and Massachusetts.
The company, which could not be reached for comment, has acknowledged its prospects are tied to Trump’s interests in NAFTA and alternative energy more broadly. In a conference call with investors the day after the 2016 election, Steve Lockard, president and CEO of TPI, urged optimism.
“Mr. Trump has also called for the re-negotiation of NAFTA. We believe there are many strong forces that will oppose significant changes to NAFTA, including the automotive industry, that we believe would make large-scale changes challenging and unlikely,” Lockard said.
The Phoenix-based trucking company Knight Transportation began in 1990 and saw its business mushroom at the same time cross-border commerce with Mexico took off. According to the company, it started with “just a handful of trucks” locally and now has more than 4,000 nationally. From 1991 to 2011, its revenues jumped from $13 million to $850 million.
That growth happened as loaded-truck southern-border crossings between California and Texas grew 231 percent between 1996 and 2015, according to the Bureau of Transportation Statistics.
Arizona’s growth has not kept pace with its bigger neighboring states. California and Texas each grew more than 130 percent. Arizona grew 55 percent. One reason for that is more than 85 percent of Arizona’s border truck traffic has passed through one port, Nogales. California and Texas each have several major ports to handle cross-border commerce.
U.S. Rep. Raúl Grijalva, D-Ariz., sees Arizona’s border ports as an underused resource.
“Mariposa has eight beautiful lanes, but only three are useful because you don’t have staff. You go to San Luis, 10 of them, two open because they don’t have staff to keep it going full time,” he said. If the Trump administration wants to make a good-faith effort at improving NAFTA, ensuring the ports of entry operate at capacity would be one place to begin, Grijalva said.
Arizona’s leaders see gains
Made in America?
The top-line economic changes in the NAFTA era are hard to ignore. Trade between the three nations has more than tripled and easily grew faster than other international trade.
Mexico and Canada are the second- and third-largest importers of U.S.-made goods. America imports slightly more from Canada than it exports. The U.S. imported about 12 percent more from Mexico than the value of what it sold there in 2016, according to U.S. government figures tracking trade.
Excluding oil, the U.S. trade balance with both nations has been nearly flat for most of the past decade. Still, while trade with Canada and Mexico is substantial, the growth there is relatively small compared with the overall size of the U.S. economy.
“Just from the numbers part of it, trade with Mexico has been very important” to Arizona’s economic growth, said Margie Emmermann, who served as executive director of the Arizona-Mexico Commission under four governors. NAFTA also helped Canada jump-start investment in Arizona and, with Mexico’s Arizona-related trade, supports about 100,000 jobs in the state, she said.
Wallach said NAFTA has boosted corporate bottom lines without improving conditions for workers in either the U.S. or Mexico.
Mexican agriculture, especially in corn, has been hurt by the influx of U.S. imports, she said. That, along with land reforms in Mexico, displaced workers there by the hundreds of thousands, she said. That helped hold down wages in Mexico and sent many of them into the U.S. illegally seeking work here, Wallach said.
“You would expect your circumstances as a border state, given the story you were told, that (Arizona) would be the great winners of NAFTA,” she said. “In fact, that’s not the case. It’s very commodity-specific. Iowa is a great winner of NAFTA.”
Perhaps the most potent criticism of NAFTA is its effects on manufacturing, especially the auto industry, which is the most valuable industry for both U.S. imports and exports with NAFTA nations.
A longer view, however, shows manufacturing jobs have been declining for decades.
Overall manufacturing employment peaked in 1979 at about 19 million nationwide. The 12 million people working in manufacturing today is about the same number as in 1941.
The share of all work tied to manufacturing peaked at 38 percent in 1943. These days, it is less than 9 percent.
Even so, there is a nostalgia for manufacturing jobs, which are still seen as a source of economic strength rather than a vanishing rarity. By contrast, overall employment has grown significantly since 1990, before NAFTA. Nationally, it’s grown 32 percent; in Arizona, it’s 82 percent.
McSally, like others in Washington, agreed reviewing NAFTA isn’t necessarily a bad thing for Arizona. She said she thinks businesses can be persuaded to stay in America with better incentives from the U.S. government, apart from NAFTA.
“Can it be dusted off and see if there’s some assumptions that need to be updated?” she said. “Perhaps, but I think we need to be very measured and careful in doing that.”
Maltz, the ASU professor, agrees.
“I think it’s only fair to revisit every few years and take a look, in spite of the fact that I think it’s a net positive,” he said.
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