Tuesday, September 5, 2017

The Other Side of NAFTA

Irony has taken center stage at the NAFTA renegotiation talks.

Throughout the primaries and the 2016 general election, President Trump made his disapproval of the North American Free Trade Agreement a centerpiece of his campaign, arguing that free trade agreements like NAFTA hurt American working people while enriching the elite. [1] It was hard to argue with him on that point. As Robert E. Scott, and economist with the Economic Policy Institute, wrote in 2003,

“Since the North American Free Trade Agreement (NAFTA) was signed in 1993, the rise in the U.S. trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 U.S. jobs. Most of those lost jobs were high-wage positions in manufacturing industries. The loss of these jobs is just the most visible tip of NAFTA’s impact on the U.S. economy. In fact, NAFTA has also contributed to rising income inequality, suppressed real wages for production workers, weakened workers’ collective bargaining powers and ability to organize unions, and reduced fringe benefits.” [2]

None of this should have come as a surprise, of course. Free trade encourages manufacturers to locate their plants where labor is cheaper, and enables them to threaten domestic workers with just such a move. With free trade amounting to a religious tenet for both major political parties, Donald Trump was able to present himself as a champion for working people, a strategy that paid off handsomely.

But Mr. Trump also expressed his appreciation of right-to-work laws during the 2016 campaign. He said he favored “states with right-to-work laws because ‘it is better for the people’ to not have to pay union dues if they don’t want to.” [3]

Of course, right to work laws can only be said to be “better” for working people in the extreme short term. To be sure, an individual worker saves the money that he would otherwise pay in dues if he so chooses. But right-to-work laws weaken labor unions by depriving them of funding, and it cannot be denied that union workers are better compensated than their non-union counterparts. [4] [5]

Interestingly, right-to-work laws have nothing to do with the right to work. They are laws that impose a specific restriction on contract terms between a labor union and an employer. That restriction is that a company and a union may not enter into a contract whereby all of the company’s employees must become union members. They may not enter into such an agreement even if both sides want to do so. Right now, twenty-eight U.S. states, and Guam, have right to work laws. [6]

Now it is obvious that since right-to-work laws weaken unions, and unions increase compensation for working people, that a country with right-to-work laws will have an advantage under a free trade agreement over a country that does not. That is because the companies will be encouraged to locate their facilities in countries where they can find the cheapest labor. Thus, in the NAFTA renegotiation talks, while the United States tussles with Mexico over its cheap workforce [7], “Canadian negotiators are demanding the United States roll back” its right-to-work laws. “The request is part of a push by Ottawa to get the U.S. and Mexico to adopt higher labour standards under the deal.” [8] According to The Globe and Mail,

“One source familiar with the discussions said Canada wants the United States to pass a federal law stopping state governments from enacting right-to-work legislation; the source said the United States has not agreed to such a request. Canada believes that lower labour standards in the United States and Mexico, including right to work, give those countries an unfair advantage in attracting jobs.”

So the Canadian negotiators believe that the United States has achieved an unfair competitive advantage because we treat our workers so poorly. When it comes to depressing wages through the artifice of right-to-work laws, their point is hard to argue with, though it is doubtful that our current national leadership will engage in that much self-reflection.

And we thought it was only Mexico that was trying to start a race to the bottom.