The view among mainstream economists is that NAFTA has raised incomes in the U.S. while costing it thousands of manufacturing jobs. Whether you view the agreement as a plus or a minus, the reality is that the U.S., Canada and Mexico are now a single integrated economy.
When you buy an “American-made” car, you are probably buying a car that has an immensely complicated mix of components that were also made in Mexico and Canada. The same is true for many electronics, and advanced textiles such as carpeting. The beef in your grocery store might be from a cow that was fattened and slaughtered in the United States, but that was very likely born across the border in Mexico.
That is the world that has evolved in the almost 23 years since the North American Free Trade Agreement (NAFTA) was enacted. These deep economic interconnections show why trying to unravel what Donald Trump, in last week’s debate, called “the single worst trade deal ever approved in this country” would be no easy feat. It would risk disrupting the very underpinnings of industries that employ millions of Americans.
The view among mainstream economists is that NAFTA, overall, has raised incomes in the United States while also costing it thousands of manufacturing jobs. But whether you view the agreement as a net positive or a net negative for the country, the reality is that the United States, Canada and Mexico are now for all practical purposes a single integrated economy. That has wide-ranging consequences — especially if the next president tries to reshape or abandon the deal.
At the border between Santa Teresa, N.M., and the Mexican town of San Jeronimo, up to 5,000 head of cattle a day amble across the border; they are less likely to become stressed and lose weight when they walk under their own power than when loaded into semis. After being bred in the hills of Northern Mexico, and after eating U.S. corn, they become a key input for the U.S. beef industry. It creates jobs in feedlots and slaughterhouses in the United States, where the animals are fattened, and produces less costly beef for consumers in the United States and in the global markets to which the beef is exported.
Most Read Nation & World Stories
- 'You people with this phony Emoluments Clause': Cabinet meeting devolves into 71 minutes of Trump grievances
- ‘Are you talking to me?’ Trump’s anger on impeachment erupts
- Trump likens House impeachment inquiry to 'a lynching' VIEW
- Mitt Romney admits to running secret Twitter account under the alias 'Pierre Delecto'
- US diplomat: Trump linked Ukraine aid to demand for probe VIEW
A few miles away, Mexican workers in a Foxconn facility assemble Dell computers that were designed in Texas and will be sold all over the world. Low labor costs keep Dell on a competitive footing with global competitors like China’s Lenovo. Because of that, Dell can employ thousands of highly paid engineers and salespeople in the United States.
And U.S. automobile companies have supply chains that are so thoroughly integrated across the Canadian and Mexican borders that when huge traffic backups developed on the Ambassador Bridge between Detroit and Windsor, Ontario, because of intensive security after the Sept. 11 terrorist attacks, Michigan auto factories were at risk of having to shut down for want of supplies.
The auto industry is so intertwined among the three countries that it’s almost useless to think of a car as being “made in the United States,” even if the final assembly takes place within America’s borders.
“You have what looks like an American car, with Mexican labor and materials that went into it and Canadian materials,” said James Bookbinder, a professor of logistics and manufacturing at the University of Waterloo in Ontario. “It’s really from the NAFTA region, and in the process some of those jobs created are in Mexico, but there are also jobs in the United States because all these pieces fit together.”
Boost for U.S. competitiveness
As a general rule, Mexican suppliers make parts that can be done with low-skilled labor and relatively simple assembly — plastic bumpers, seats or dashboards. More complex parts such as engines, transmissions and electronics components are more likely to be made in the United States or Canada, where the workers and suppliers with more advanced skills are in greater supply.
“A transmission is a complicated piece of machinery and might go back and forth across the border three or four times as different components are added at different plants,” said Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics.
There are parallels elsewhere in the world. In Europe, German manufacturing is extraordinarily successful on the world stage — but many of the more labor-intensive, lower-value inputs for German cars and other manufactured goods come from lower-wage countries in the European Union like Poland and Hungary.
It’s true that there have been fewer auto-making jobs in the United States since the introduction of NAFTA. The 926,000 jobs making motor vehicles and parts is down 15 percent since December 1993.
But it’s hard to untangle the impact of trade and the shifting of some work to Mexico from the advanced technology such as robotics that reduces the man-hours it takes to build a car. Overall manufacturing employment in the United States is down 27 percent in the same span.
“There’s this tendency to say, ‘It’s all moving to Mexico,’ ” said Bernard Swiecki, a senior analyst at the Center for Automotive Research. But the center’s research finds that automakers have spent $77 billion on new or upgraded capital projects in the United States since 2010, compared with $26 billion in Mexico.
The improved competitiveness of U.S. companies in the global auto market since the 1990s has happened, in part, because they have built more efficient North American supply chains. Different parts of the car are made in the place where the local labor force and cost structure are the best fit.
“If a product uses really sophisticated materials like high-strength steels and advanced composites, and more sophisticated processes,” Swiecki said, there’s a better chance you can find the people with the skills needed in the United States or Canada. Meanwhile, the lower price of labor-intensive parts imported from Mexico helps control the cost of the overall automobile and makes it more competitive with cars built in Europe or Asia.
Since the 1990s, major automakers based outside the United States have built U.S. factories to gain access to these local supply networks and get closer to U.S. consumers. That has to do with a lot more than NAFTA, but the connections between North American parts suppliers across borders surely helped speed the process.
The North American auto industry is not the only sector where such a transformation has occurred, Hufbauer says. U.S. textile companies make technologically advanced fabrics like those for carpeting, parachutes or the steel mesh inside tires. They are exported to Mexico, where the more labor-intensive work of turning those into finished goods is done. The same goes for many electronics.