North American Free Trade Agreement and American Consumers

QUESTION 1: Why did many textile jobs apparently migrate out of the United States in the years after the establishment of NAFTA? ANSWER 1: Between 1994 and 2004, despite strong and growing demand by American consumers, U. S. apparel production fell by 40 percent and textile production fell by 20 percent. The cuts in production led to significant job losses, with employment in textile mills falling from 478,000 to 239,000, and apparel employment dropping from 858,000 to just 296,000. Most students will recognize that the NAFTA agreement meant that U. S. roducers could take advantage of Mexico’s low cost labor and inputs. Wages in Mexico are between $10 and $20 per day as compared to the $10 to $12 per hour in the United States. QUESTION 2: Who gained from the process of readjustment in the textile industry after NAFTA? Who lost? ANSWER 2: Most students will recognize that U. S. consumers, U. S. producers, and Mexican workers were the primary beneficiaries of the readjustment in the textile industry. Thanks to NAFTA and the cheaper labor available in Mexico, American consumers have watched prices on clothing fall.

Designer jeans, for example, fell from about $55 in 1994 to about $48 today. For consumers, this means more money to spend on other items. However, while many consumers may be happy about the shift in apparel production from the United States to Mexico, some consumers may have been one of the unlucky individuals who also saw their job move to Mexico. QUESTION 3: With hindsight, do you think it is better to protect vulnerable industries such as textiles, or let them adjust to the painful winds of change that follow entering into free trade agreements? What would the benefits of costs of protection be?

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What would the costs be? ANSWER 3: Most students will probably agree that protecting an industry is simply a recipe for prolonging the inevitable pain of readjustment. Students taking this perspective are likely to point out that the need to protect an industry implies that the industry is less efficient, and unable to compete in the global market. In the long run, by forcing the adjustment, greater efficiency and competition will be introduced, and prices will fall. However, those students who have been directly affected by such a readjustment process may have a different perspective.

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