Commentary

NAFTA Benefits Arizona

By Daniel Griswold
July 2, 2003

In the past decade, the people of Arizona have experienced first-hand the benefits of free trade with Mexico. Since enactment of the North American Free Trade Agreement in 1994, trade, jobs, and income in your state have all been heading north.

NAFTA, of course, was the historic agreement among the United States, Mexico, and Canada, to eliminate barriers to trade among the three nations. Opponents of the freedom to trade have tried to blame NAFTA for a host of problems, real and imagined. But the agreement has been a great success for Arizona, the United States, and neighboring Mexico.

Opponents of NAFTA warned of a “giant sucking sound” of jobs and investment heading south if the agreement were enacted, but all the evidence points the other way. Since 1994, Arizona’s exports to Mexico and Canada have doubled, including more than $1.5 billion in computer and software exports to Mexico in 2001 alone. Arizona’s farm exports to Mexico have also soared.

Claims that NAFTA has destroyed jobs in Arizona do not stand the laugh test. Since NAFTA was enacted in 1994, your state has added a net 700,000 new jobs and real wages have risen. The state’s unemployment rate today is lower than it was before NAFTA. About 25,000 mostly well-paying jobs in Arizona are directly tied to exports to Mexico and Canada, and thousands more jobs in transportation, banking, and finance are indirectly connected. NAFTA has stimulated the growth of tourism in the Southwest and created investment opportunities for small and medium-sized Arizona companies to reach new markets.

Nationwide, NAFTA helped to stimulate America’s longest post-war economic expansion. During much of the 1990s, when imports and trade deficits were both rising rapidly, so too were domestic employment, manufacturing output, and real wages. Between 1994 and 2000, civilian employment in the U.S. economy rose by a net 12 million and the unemployment rate fell from 6 percent to 4 percent. During that same period, U.S. manufacturing output rose by 40 percent while the volume of imported manufactured goods doubled during that same period. Meanwhile, real compensation rose for American families up and down the income scale.

In the first eight years of NAFTA (1994-2001) manufacturing output in the United States rose at an annual average rate of 3.7 percent, 50 percent faster than during the eight years before the agreement took effect. Manufacturing employment has fallen in the past few years because of our homegrown economic slowdown, but that cannot in any plausible way be blamed on NAFTA. In fact, the number of Americans employed in manufacturing grew by half a million in the first five years of NAFTA.

American factories are not pulling up and moving wholesale to Mexico. U.S. manufacturers invest an average of about $2 billion a year in Mexico, compared to almost $200 billion invested annually in our domestic manufacturing capacity. U.S. companies currently own more direct manufacturing investment in the tiny Netherlands ($34.7 billion) than they do in Mexico ($19.7 billion).

Finally, NAFTA has been good for Mexico and our bilateral relations with our southern neighbor. NAFTA helped Mexico recover from its own homegrown peso crisis in 1994-95. While it took a full seven years for U.S. exports to Mexico to recover after the debt crisis of 1982, it took only 17 months for our exports to rebound after the peso crisis. Since 1995, incomes in Mexico have been rising and its economy has been one of the most stable and dynamic in Latin America.

The economic competition from NAFTA has helped to till the soil in Mexico for a more open and competitive political system. It is no coincidence that a few short years after the enactment of NAFTA, Mexicans were able to end seven decades of one-party rule by electing opposition candidate Vicente Fox as their president. NAFTA has also encouraged higher regulatory standards in Mexico and more cross-border cooperation on sensitive environmental issues.

For the people of Arizona, NAFTA has delivered good-paying jobs for workers and export and investment opportunities for local companies. Across the border, NAFTA has helped to create a more stable, friendly, and democratic Mexico. By every reasonable measure, NAFTA has been a success for people north and south of the border.

Daniel T. Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute.