The Real Story On CAFTA
July 29, 2005
Now that Congress has passed CAFTA, the Central American Free Trade Agreement, the spin has been ratcheted up a couple of notches on both sides. Those against the measure predict the doom and gloom of lost jobs and further dependence on foreign countries. These same opponents claimed nothing but disaster in the wake of CAFTA's big sister, NAFTA, the North American Free Trade Agreement. CAFTA, they say, will bring more of the same.
I don't profess to be an expert on international trade but I do contain a fair amount of common sense. Let's apply some of that to this issue.
There are those who point to the countless textile and manufacturing jobs that have left the country. Many of those jobs have gone overseas. Understand something. If jobs have gone overseas, that has nothing to do with NAFTA. NAFTA deals only with North America. Jobs have been going overseas for years for a variety of reasons. One has to do with tax incentives to American companies that invest in foreign countries. Part of the reasoning was we were spending so much on foreign aid it made more sense to help bolster their economies by creating jobs abroad. It seemed like a good idea, in theory, however, companies soon learned that labor was much cheaper overseas and, with the tax incentives, their profit margins were higher. The reasons for overseas relocation are many and varied but NAFTA is not one of them.
Still, opponents of international trade agreements point to jobs heading south of the border; that great “sucking sound” Ross Perot warned us about. The jury's still out on exactly what impact NAFTA has had on jobs moving to Mexico. However, the Congressional Research Service, an arm of the Library of Congress issued a report to Congress on the effects of NAFTA in 2003. The report states that “the overall effect of NAFTA on employment tends to move jobs between sectors rather than to change national employment levels.” Worst case numbers from opponents of NAFTA range from 35,000 to 600,000 jobs lost over ten years. That may sound like a lot of jobs but it's really not considering the millions of American workers. And these displaced workers are obviously finding work. The unemployment rate in 1994, soon after NAFTA went into effect, was around 8 percent. It now hovers around 4 percent.
Ah, but these are lower paying jobs, right? It doesn't appear so. Average and median income rates over the years since NAFTA have been unaffected. In Tennessee, for example, we may have lost textile jobs but we've gained companies like Dell and Sprint PCS. Nashville is now the nation's top city for business expansion and relocation, according to “Expansion Management” magazine.