Nafta and Its Effect on Immigration in the United States

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NAFTA and Its Effect on Immigration in the United Stated

NAFTA is the North American Free Trade Agreement an enacted by Congress 14 years ago, held out an alluring promise: the agreement would reduce illegal immigration  from Mexico . Mexicans, the argument went, would enjoy the prosperity and employment that the trade agreement would undoubtedly generate — and not feel the need to cross the border into the United States. Why didn’t Nafta curb this immigration? The answer is complicated, of course. But a major factor lies in the assumptions made in drafting the trade agreement, assumptions about the way governments would behave (that is, rationally) and the way markets would respond (rationally, as well). Nafta remains the model for trade agreements with developing Latin countries, including the Central American Free Trade Agreement, passed by Congress in 2005. Three more Nafta-like agreements are now pending in Congress — with Panama, Columbia and Peru. When Nafta finally became a reality, on Jan. 1, 1994, American investment flooded into Mexico, mostly to finance factories that manufacture automobiles, appliances, TV sets, apparel and the like. The expectation was that the Mexican government would do its part by investing billions of dollars in roads, schooling, sanitation, housing and other needs to accommodate the new factories as they spread through the country. It was more than an expectation. Many Mexican officials in the government of President Carlos  assured the Clinton administration that the investment would take place, and believed it themselves, said Gary Hufbauer, a senior fellow at the Peter G. Peterson Institute for International Economics in Washington who campaigned for Nafta in the early 1990s. Meanwhile, Mexican manufacturers, once protected by tariffs on a host of products, were driven out of business as less expensive, higher quality merchandise flowed into the country. Later, China, with its even-cheaper labour, added to the pressure, luring away manufacturers and jobs. Indeed, despite the influx of foreign-owned factories, total manufacturing employment in Mexico declined to 3.5 million by 2004 from a high of 4.1 million in 2000, according to a calculation of Robert A. Blecker, an American University economist. As relatively well-paying jobs disappeared, Mexico’s average wage for production workers, already low, fell further behind the average hourly pay of production workers in the United States, and Mexicans responded by migrating. “The main thing that would have stemmed the flow of people across the border was a rapid increase in wages in Mexico,” said Dani Rodrik, an economist and trade specialist at Harvard’s John F. Kennedy School of Government . “And that certainly has not happened.” Something similar occurred in agriculture. The assumption was that tens of thousands of farmers who cultivated corn would act “rationally” and continue farming, even as less expensive corn imported from the United States flooded the market. The farmers, it was assumed, would switch to growing strawberries and vegetables — with some help from foreign investment — and then export these crops to the United States. A financial crisis also dashed expectations. One expectation was that the Mexican economy, driven by Nafta, would grow rapidly, generating jobs and keeping Mexicans home. The peso crisis of 1994-95, however, provoked a steep recession, and while there was some big growth later, the average annual growth rate over Nafta’s lifetime has been less than 3 percent. Finally, the steady flow of Mexicans to the United States has produced a momentum of its own — what Jeffrey Passel, a demographer at the Pew Hispanic Institute, calls a “network effect,” in which young Mexicans travel to the United States in growing numbers to join the growing number of family members already here. The upshot is that Mexican migration to the United States has risen to 500,000 a year from less than 400,000 in the early 1990s, before...
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