From Deep in the 'Rust Belt,' a Shining View of NAFTA
This week President Clinton will likely report to Congress on the North American Free Trade Agreement's effect on the United States. While there is debate over its effect on jobs, there is no dispute over the record-setting US exports since NAFTA took effect on Jan. 1, 1994.
Since then, US exports to Mexico have grown 37 percent, reaching a high of $57 billion. By the end of 1997, that "third world" country will buy more American products than any country except Canada, surpassing second-place Japan, which has an economy 15 times larger. US exports to Canada since NAFTA was implemented have risen 33 percent, also reaching record levels. Such data has led US Trade Representative Charlene Barshefsky to assert, "There is no economic argument against NAFTA."
Yet, while there's plenty of talk about NAFTA's national impact, we must remember that trade policy is felt first and foremost at the local level. In that respect, the experiences of most states are positive. For instance, during NAFTA's first three years, 39 of the 50 states increased their exports to Mexico.
A good indicator of NAFTA's local effect is the state of Pennsylvania - and the Pittsburgh region in particular. Pennsylvania is one of the nation's top 10 trading states, a leader in agricultural exports, and one of Canada's most significant trading partners. It exported $5.3 billion in products to Canada in 1996. On the negative side, the state is among the top five in NAFTA-induced job losses. Pennsylvania is home to two of the nation's top exporting cities, Pittsburgh and Philadelphia. Pittsburgh, of course, is at the core of the "rust belt" - a heavily unionized old steel and manufacturing town. Any talk of NAFTA among the locals sparks angry rhetoric about cheap Mexican labor that "takes away jobs." Despite the area's heavily Democratic political roots, Ross Perot and Pat Buchanan have support here.
And yet, despite some negatives in terms of job-loss statistics, NAFTA appears to be, overall, a big plus for Pennsylvania and the Pittsburgh region. Pennsylvania exports to Mexico from 1993 to '96 increased 27 percent, hitting a record $827 million. Mexico is buying more Pennsylvania products than any country except Canada - impressive for a nation whose residents, according to Ross Perot, all live in cardboard boxes. Pennsylvania's exports to Canada are up 34 percent since the start of NAFTA, twice the rate of increase during the four years before the trade pact.
The Pittsburgh region has witnessed gains in total exports to both Mexico and Canada since NAFTA's implementation. The region's exports to Canada increased 13 percent. Regional exports to Mexico in 1995 (a recession year) were 4 percent higher than pre-NAFTA levels; they jumped 24 percent in the first year of NAFTA.
A wide range of industries have experienced export gains. In Pennsylvania, statistics indicate that 21 of 30 industries enjoyed increases in exports to Mexico since NAFTA, and 29 of 32 saw rises in exports to Canada. Of the 21 industries with gains to Mexico, 12 had double-digit growth and six had triple-digit rises. Of the 29 industries that saw gains to Canada, 26 had double- or triple-digit increases in exports.
NAFTA's tariff-cutting provisions have made Pennsylvania and Pittsburgh-area products cheaper than the products of non-NAFTA nations competing in those two markets. This has allowed local companies like Mine Safety Appliances (MSA) and Heinz to improve their competitive advantage. The tariffs on Heinz's products have gone from 20 percent to 4 percent on their way to zero in 1998. Prior to NAFTA, Heinz had no sales in Mexico. In 1996, Heinz sold $3 million to $5 million in products in Mexico. MSA has had similar tariff reductions on thousands of its products.
Likewise with Harrisburg-based AMP Inc., which makes electrical parts, and numerous other Pennsylvania firms. From 1993 to '96, AMP's exports increased by 66 percent to Canada and by 98 percent to Mexico. The company's exports to Mexico increased by double digits each year since NAFTA was implemented.
On the negative side, 69 Pennsylvania companies, comprising 10,150 workers, have been certified as hurt by either NAFTA or "foreign competition," and are thus eligible for unemployment compensation and trade adjustment assistance (TAA). Of the 10,150 eligible workers, 587 are receiving NAFTA-related TAA unemployment benefits. Many other firms have gained employees from NAFTA, but such gains are not totaled or monitored by the Department of Labor.
Even Pennsylvania industries that include companies who claim they've been hurt by NAFTA have seen significant increases in exports. The clothing/apparel industry has had a 506 percent rise in business with Mexico and a 124 percent jump with Canada. Electrical component manufacturers had rises of 27 percent for Mexico and 38 percent for Canada. Both industries are in the top five nationally in job losses.
Overall, the NAFTA numbers for Pennsylvania and Pittsburgh are good.
At the Allegheny Institute, one of the country's few local-oriented think tanks, we are fond of paraphrasing "Tip" O'Neill's famous saying, "All politics is local." He was right, of course. But Washington sometimes forgets that all policy is local, too. Indeed, to measure the true impact of NAFTA we must look not only at US trade figures, but also to local areas like Pennsylvania and Pittsburgh. That's where the impacts of policy are intimately felt. And from our vantage point in the heart of the "rust belt," the impact hasn't hurt.
* Paul Kengor is a research fellow at the Allegheny Institute for Public Policy, a Pittsburgh-based think tank.