NAFTA: Unfair Free Trade

At the beginning of Stigitz’s chapter on “Making Trade Fair,” he describes the formation of NAFTA as a case study to exhibit how the concepts of free trade and globalization have played out in the real world and not just hypothetical situations that we have seen thus far. The formation of NAFTA left people hoping that Mexico’s economy would boom upward, but we shortly saw that this did not occur.

I found this study to contradict Wolf’s claim that unchecked liberalization will advance developing countries. We have seen, in Mexico alone, that asymmetric trade has taken place, with Mexico opening up to goods from the U.S. without full reciprocation (Stiglitz, 62). For instance, Mexican corn farmers had to compete for subsidized American corn and NAFTA didn’t create an international governing body to allow Mexico to impose duties on U.S. imports to offset subsidies.

Because Mexico lacks a strong safety net, the risk that liberalization presents cannot be offset by a functional infrastructure. The fact that NAFTA created the largest free trade area in the world at the time does not make up for the fact that the countries involved did not create an international management system to counteract the inequality present between the U.S. and Mexico. Free trade obviously looks harshly on protectionism, especially in the context of developing countries, but this may be needed as developing countries attempt to transform from agriculture to industry. Also, developed countries, the U.S. included, have been protectionist even when it was not profitable to do so. Under the Jones Act of 1920, ships used to transport goods domestically had to be owned, built, and manned by Americans, eventually leading to a loss of $250,000 for every job it saved (Stiglitz, 89). If this fact isn’t hypocritical and sufficient enough to show that free trade has produced asymmetric relationships, I’m not sure what is.

NAFTA made Mexico more dependent on the U.S. and heightened the disparity in income between the two countries. Mexico already had low investments in education and technology, but free trade forced them to eliminate tariffs, so they lost even more funding. This further lowered their capability, I would say, because they then had even fewer funds to put towards building up their infrastructure.

Growing up, NAFTA was always portrayed as a success; it seemed intuitive that North America should have been trading freely long before 1994. The elementary school textbooks showed picturesque images of farmers and manufacturers; they revealed nothing of how the U.S. was continuing to zoom past Mexico in virtually all areas.