DOWN WITH FREE TRADE: Repeal NAFTA!!!!!

DOWN WITH FREE TRADE

Repeal NAFTA!!!!!

By: Kimo Gandall & Camryn Love

NAFTA, otherwise known as The North American Free Trade Agreement, was passed on November 17, 1993 under the Clinton administration, who promised to bring the economies of Mexico, Canada and the United States together to form a cohesive industrial unit, while providing jobs and sustainable trade. But this facade of “free trade” was in fact nothing more than a cover-up for International Corporations to exploit the extensive poverty in Mexico and unreasonable farming subsidies in the United States to reap billions of dollars in profit, while leaving the average American in shambles.

1

Many economists have propelled the theory of comparative advantage as essentially cited proof that “free trade” works. Comparative advantage falls under a plethora of definitions, but is most commonly referred to as the notion that one nation can specialize and produce a product better than another nation; hence, if both of these nations trade their “specialized” product, they can earn a net gain. Alan Deardorff from the University of Michigan explains that the two key theoretical implications of comparative advantage are:

1. If countries are permitted to trade freely (and actually, even if that trade is restricted), and if they have competitive, undistorted markets, then they will export the good or goods in which they have comparative advantage and import those in which they have comparative disadvantage

2. Under the same conditions, all countries will gain from trade, in the sense that those individuals who gain from trade within each country will gain enough that they could potentially fully compensate those individuals who lose, within the same country, and still remain better off than in autarky.

It is important also to note that comparative advantage is not simply a vague notion; many scholars have attempted to, and some argue successfully have, empirically defined comparative advantage. The Ricardian Model was one of these ‘empirically defined’ economic structures, which explained itself as the following:

…that unit labor requirements for production are constant (do not vary with output). Let  a be the unit labor requirement for producing good g in country c. If the autarky wage of labor (the only factor) in country c is w ~ , then with competitive markets price equals cost: = …

[Therefore…] in the Ricardian Model, a country has a comparative advantage in the good whose labor cost, relative to other goods in the same country, is lower than the relative labor cost of that good abroad.

(University of Michigan, 2003).

Models like these, of which there are many, have attempted to rationalize the theory of comparative advantage, in an attempt to justify economic interdependence, and hence, support the notion of free trade. Many liberal economists have founded their principals on this belief. The largest pragmatic implementation of this theory relies on the production of food, specifically known as the locavore movement as a key case study.
The locavore movement, as described by Merriam-Webster dictionary, is simply “one who eats foods grown locally whenever possible.” Steve Sexton, Assistant Professor in the Economics Department from the Stanford School of Public Policy, 2011, explained that “…critics contend that today’s industrial agriculture is too dependent on fossil fuel, and too eager to ply consumers with cheap but nutritionally bankrupt calories,” which accounts for the locavore movement. The professor, however, startlingly notes that:

A locavore-like production system would require an additional 60 million acres of cropland, 2.7 million tons more fertilizer, and 50 million pounds more chemicals… [therefore the] land-use changes and increases in demand for carbon-intensive inputs would have profound impacts on the carbon footprint of our food, destroy habitat and worsen environmental pollution.

Essentially, many liberal economists are using the Professor’s work to justify the expansion of universal specialized systems, because smaller economic models simply are ineffective. This proof seems to lend credibility to the notion that the United States ought to adopt free trade; after all, if specialized systems save resources, why not adopt them? There is one massive problem with interpreting the Professor’s work in this manner in that the methodology of the study only takes into account the United States as a whole. You cannot just apply a study focused on individual communities in the United States to Mexico and Canada. The economic conditions are simply different. On top of that, the United States as a whole possesses vast quantities of territory and resources, while individual communities do not. The reason the study made the impacts of locavorism so strong is because the infrastructure for producing crops in the status quo do not require start up capital and can be grown effectively in certain areas.

2

Another case study commonly used to support the notion of liberalized trade policies is East Asia, the keystone, many claim, to the success of free trade. The Washington Times, October 6, 2014 explained that “World Bank researchers found that the average person in the middle of the income spectrum in China, for example, enjoyed a near-tripling of income between 1988 and 2012. Middle-income Thais and Indonesians nearly doubled their incomes, while India’s middle class saw income growth of about 50 percent in the same time period…. Leading the resurgence of Asia has been China, whose rapid industrialization has lifted more than 600 million people out of abject poverty.” All of this occurred in the midst of China signing 11 free trade agreements. However, the problem this argument incurs upon itself is that China and India, previously poor and undeveloped nations, were not experiencing the ‘god sake’ of free trade, but the symptoms of industrialization. Bardhan Pranab, from UC Berkeley, August 2006,  argued that “In China [the poverty reductions are] due to internal factors like expansion of infrastructure or the massive 1978 land reforms or policy changes relating to grain procurement prices or the relaxation of restrictions on rural-to-urban migration” and that a “substantial part of the decline in poverty in the last two decades already happened by mid-1980’s, before the big strides in foreign trade or investment.” Basically, the poverty reductions in China only occurred because of the industrialization the country was going under. In addition, much of the poverty reduction had occurred before China began its mass economic liberalization; hence, arguing that free trade is the key to poverty reduction simply is unlinkable to China. Bardhan similarly found that “rural poverty reduction in India [was likely] attributable to the spread of Green Revolution in agriculture, large anti-poverty programs or social movements in India, and not the trade liberalization of the 1990’s.” Essentially, poverty reduction in Asia is attributable not to free trade or economic globalization, but to good old fashioned industrial and social progress. But even if critics reject my counter as ‘skepticism’, the Economist from 2011 points out that “international comparisons of purchasing power are fraught with difficulties…In China, the PPP estimates are biased. They are based on an international comparison of prices overseen by the World Bank but carried out by China’s National Bureau of Statistics.” Somehow, it seems that China’s definitely not authoritarian, corrupt government may not be so credible. Who’s surprised?

4

Other free trade advocates claim the booming Nigerian economy is another example of the benefits of economic liberalization.  Benson Idahosa from the University Department of Economics 2014 found that in his study of about the relationship of globalization to Nigeria that, “ The empirical findings in this study shows that an increase in openness by (1) one unit will bring about a decline in poverty rate by 0.46209 percent in the current period showing a negative relationship.” Essentially, actions that Nigeria took to open trade and reduce regulations decreased poverty by about 0.46209%. I will grudgingly admit that free trade can increase the potential of investment into the country, which will likely account for the increase in jobs and purchasing power.

5

The counter for this assertion then relies on 2 principles: the definition of poverty, and the ability for sovereign control. To start, the study cited relies on the World Bank’s $1 per hour. The problem with this study is that (1) it isn’t adjusted to inflation and that (2) it assumes that subsistence farming is worse than making “$1 per hour.” For (1), the the World Bank even that the previous $1 per day should have been adjusted to $1.45 in 2005. With this statistic, poverty is not at around 10%, but nearer to 22% as of 2005. This study simply can’t be taken into consideration because the math calculated by the researchers didn’t take inflation into consideration, especially since inflation has grown even larger since 2005. But the second reason is perhaps even more important. Previously, many farmers in Nigeria simply grew their own product, and kept that product. But with farmers now working for the market, instead of themselves, the “$1 per day” the UN proudly runs around stating simply isn’t enough to provide the base necessities. Essentially, the farmers are worse off now that they have adopted Western platforms of economics because they lack the economic mobility grow or sustain their enterprising. The impacts, as Komaza, 2012 explains is that, “[farmers] have grown reliant on the unsustainable use of natural resources – cutting down indigenous trees to sell as fuelwood for cooking charcoal. This exacerbates Africa’s dangerously high levels of deforestation and leaves agricultural livelihoods in further peril.” Essentially, free trade in Nigeria has forced farmers to take paid jobs to survive the new competitive market, and these ‘paid’ jobs have only led to desperate farmers, and hungry children. In such, the very notion of Nigeria’s sovereign control is place into question, with Jacob Imo in January 2012 from the Economics Department of the University of Plateau State in Nigeria commenting that:

…today, Nigeria has not only declined economically, it has also lost its sovereignty as a result of external influence wielded by large multinational oil corporations… The number of people living in abject poverty in big oil-producing states like Nigeria, Venezuela and Angola increased dramatically over the last 30 years… In short… The arrival of foreign oil companies and massive international loans creates the perfect rent-seeking environment that quickly embosses itself at every level of nation‘s political economy, creating a virtual flea market for corruption, patronage and inequality.”

Perpetuated inequality in Nigeria hence still exists, and if anything, has only provided a platform of corruption, poverty, and oppression. Free trade advocates can argue about increases in GDP all they want, but at the end of the day, the multinational corporations, not the people, are raking in the profits.

The case study I propose and analyze to finally prove the evils of free trade is the case of NAFTA itself. Empirics clearly outline the failure of NAFTA:

  • US trade deficit adjusted to inflation with Canada and Mexico went from about $30 billion in 1993 to $181 billion in 2012, outlining nearly a 600% increase in trade deficit
  • $10 billion subsidy corporate US corn farmers destroys Mexican farmers
    • Mexican corn price falls 70%
    • Impoverishes 15 million Mexicans
      • Illegal immigration has increased 300% since then
    • The New Republic found that “Wages dropped so precipitously that today the income of a farm laborer is one-third that of what it was before NAFTA. As jobs disappeared and wages sank, many of these rural Mexicans emigrated, swelling the ranks of the 12 million illegal immigrants living incognito and competing for low-wage jobs in the United States.”
    • In the first four years of NAFTA, Mexico’s rural population earning less than needed for food increased by 50%
      • The mean price of tortillas increased by 279% since the creation of NAFTA
  • American jobs have significantly decreased:
    • An academic article published by Trade Watch has found that NAFTA has cost over 1 million American jobs caused largely outsourcing
    • The Department of Commerce has only been able to connect 1500 jobs created because of NAFTA
    • Over 60,000 American manufacturing facilities were closed after NAFTA was passed
  • NAFTA has increased income inequality:
    • The Brookings Institute found that displaced workers from manufacturing due to NAFTA had a 20% decrease in wages; $40,154 to $32,123 in average pay
    • Since NAFTA the top 1% has increased earnings by 40%
    • Cornell University found that 62% of US Unions faced threats by companies to relocate after the passing of NAFTA
    • The Center for Economic and Policy Research found that US workers without college degrees have faced an average net loss of $3,300 per year due to outsourcing caused by NAFTA
  • US imports from Canada and Mexico exceed $89 trillion
  • Despite the fact that there is a 188% increase in food imports from Canada and Mexico under NAFTA, food prices have increased by 63%
    • Due to the massive amount of food imported, The Food and Drug administration has only been able to inspect 1.5% of vegetables, 9% of beef or pork, and for seafood a shocking 0.1% despite Mexico’s lack of regulation
      • In 1997, a hepatitis-A outbreak related to strawberries imported from Mexico ended in 163 people becoming severely ill
  • Since NAFTA has taken effect, 170,000 small farms have gone bankrupt
  • Corporations have used NAFTA to blackmail the public, with large companies earning over $340 million in taxpayer dollars through NAFTA related lawsuits
    • There are currently 14 NAFTA related lawsuits pending that are worth over $12.3 billion dollars

If the numbers don’t cast a prominent and lasting shadow upon the United States, one that can be recognized by politicians and citizens alike, then nothing will. The North American Free Trade Agreement itself, as I’ve portrayed, only incentivizes corporations to blackmail the public, absorb obnoxious amounts of profits, and ignore the plight of the average American. The proposition itself doesn’t even help our neighbors; Mexico loses jobs, America loses jobs, and at the end of the day no one’s happy. Except for, of course, the insatiable multinational corporations, taking prey upon the prosperity of Americans and Mexicans alike.

Special Thanks: We would like to thank Jake Yokoe and his consistent unsubstantiated pro-globalization rants for inspiring this article.

Works Cited:

Deardorff, Alan. “Principle Of Comparative Advantage.” SpringerReference(2011): n. pag. University of Michigan, 27 Aug. 2003. Web. <http://www-personal.umich.edu/~alandear/writings/CompAdv3.pdf&gt;.

http://www.anderson.ucla.edu/faculty/dick.rumelt/Docs/Papers/WhatisCA_03.pdf

http://wer.worldeconomicsassociation.org/files/WEA-WER2-Schumacher.pdf

http://www.uh.edu/~rruffin/Ricardo’s%20Discovery.pdf

http://www.taxfoundation.org/sites/taxfoundation.org/files/docs/8ccda96dc9aa7b1b47ca2f9f2632c796.pdf

http://freakonomics.com/2011/11/14/the-inefficiency-of-local-food/

http://www.huffingtonpost.com/lori-wallach/nafta-at-20-one-million-u_b_4550207.html

http://www.huffingtonpost.com/lori-wallach/nafta-at-20-one-million-u_b_4550207.html

http://www.citizen.org/documents/NAFTA-at-20.pdf

http://www.citizen.org/documents/NAFTAs-Broken-Promises.pdf

http://cis.org/NAFTA-EffectOnWorkers

http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/mesa.aspx?lang=eng

 http://www.ijhssnet.com/journals/Vol_4_No_11_September_2014/13.pdf

 http://www.ijhssnet.com/journals/Vol_4_No_11_September_2014/13.pdf

http://insights.som.yale.edu/insights/how-has-globalization-benefited-poo

http://www.china-briefing.com/news/2014/02/10/understanding-chinas-free-trade-agreements.html#sthash.MGSYxWNx.dpuf

http://www.washingtontimes.com/news/2014/oct/6/economic-globalization-boosts-asia-bogs-down-us-mi/?page=all

http://www.crikey.com.au/2013/02/19/can-china-address-income-inequality-xis-big-challenge/

http://www.huffingtonpost.ca/salman-sakir/globalization_b_5992002.html

http://insights.som.yale.edu/insights/how-has-globalization-benefited-poor

 http://www.huffingtonpost.ca/salman-sakir/globalization_b_5992002.html

http://www.komaza.org/our-farmers/the-challenge.php

http://www.globalissues.org/article/4/poverty-around-the-world

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