Thread: turning NAFTA into a punching bag

OPINION/IDEAS
Trade deficit
By turning NAFTA into a punching bag, Clinton and Obama are ignoring the real questions that free trade raises for America
By Sasha Issenberg | May 4, 2008

RALEIGH, N.C. - For Barack Obama and Hillary Clinton, the North American Free Trade Agreement has become an all-purpose culprit for history's crimes against American industry.

In Ohio, Pennsylvania, and now Indiana, the Democratic contenders have reached out to blue-collar voters in the Rust Belt by bemoaning the effects of the decade-old treaty. When NAFTA lowered trade barriers with Mexico and Canada, it took thousands of American manufacturing jobs with it, and both candidates have promised to aggressively renegotiate it.

But weighing the full effect of free trade on the United States is a complex task, nowhere more than here in North Carolina, whose primary is on Tuesday.

Critics of NAFTA and similar agreements point to the state's shuttered textile mills and furniture factories, where thousands once toiled at work now being done more cheaply abroad. At the same time, the 19th floor of the downtown Progress Energy Building in this city tells a different story: A grid of cubicles awaits more than 300 new employees about to be hired by Optimal Technologies, a Canadian designer of hardware and software to help users manage their energy.

"If you're in Canada and you want to grow your company, you usually end up moving south," said Roland Schoettle, Optimal's CEO.

The existence of almost parallel realities - boom and bust in the same state - has become an inevitable feature of the post-NAFTA world. Yet the more Clinton and Obama battle over who is more sincere about reforming NAFTA to preserve jobs, the less they appear to be talking about the American economy as it is lived. Perhaps more than anywhere in the country, it is in North Carolina that the candidates could find the most visible demonstration of the trade-offs of global trade, producing winners as well as losers, living side by side.

. . .

When NAFTA took effect in 1994, it kicked off an era of free-trade agreements - Congress is wrestling now with bilateral deals with Colombia and South Korea - signed into law with promises aimed at a class already integrated into the global economy: Foreign markets would be opened to American goods, and domestic consumers would find access to foreign products at lower prices.

Ross Perot, arguing against NAFTA during his 1992 presidential campaign, warned of a "giant sucking sound" of American jobs shifting to Mexico, where manufacturing work would be taken up by those able to do it for less. In its first five years, NAFTA was estimated to have cost North Carolina more than 30,000 jobs in the textile and furniture industries that were central to the state's economy.

Those industries were so deeply entrenched in North Carolina because it was, for a long time, something of a domestic Mexico. In 1973, the Midwest Research Institute placed North Carolina 46th in a ranking of states by their quality of life, noting its high rates of infant mortality and low rates of education and telephone ownership. Most tellingly, when the institute ranked states according to their average hourly salaries for manufacturing workers, North Carolina came in 49th. Cheap labor, lenient regulations, and a lack of unionization had made it ideal turf for basic industry.

When NAFTA lowered the costs of moving goods between countries, companies found little reason not to cross the border in search of even friendlier economic and legal conditions. Companies that produced cotton shirts and wooden chairs went out of business, leaving behind whole towns with little remaining economic activity and a strong sense that free-trade deals were to blame.

But here in Raleigh, none of the 300 local residents whom Optimal expects to hire in coming years are likely to spend much time worrying about NAFTA. The company's new office lies within the Research Triangle, the high-tech, education-driven region named for the state-funded corporate park located between Raleigh, Durham, and Chapel Hill.

The area is home to three large research institutions and now one of the country's highest concentrations of PhDs per capita. In biotechnology, this region is in constant competition with Massachusetts over companies looking to expand or relocate. Lenovo, the Chinese computer manufacturer that recently purchased IBM's PC business, has established its American headquarters there. Local officials do not spend time lamenting jobs lost abroad; instead they brag about their low unemployment rate - much of which is attributable to foreign trade and investment.

The resulting picture, says Raleigh Mayor Charles Meeker, is a state with "almost two economies."

"The Research Triangle is doing well, but North Carolina is not," he said.

Both of those economies have been deeply affected by trade deals like NAFTA that have encouraged a freer flow of labor, capital, goods, and ideas across national borders. Yet since their attention turned sharply toward trade in February, Obama and Clinton have been speaking to only one of them. Fixating on the loss of manufacturing jobs to Mexico, both candidates have pointed to a lack of labor and environmental standards in the original pact, which they say fails to protect American workers from unfair competition.

Of course, unfair competition is in the eye of the beholder, and Canadian labor unions are now trying to wield a similar cudgel to keep jobs from flowing southward to the United States. Last week, under one of the side agreements to NAFTA, Canada's largest public-sector union, the National Union of Public and General Employees, led a consortium of labor groups in filing a complaint against North Carolina. State laws preventing collective bargaining among public employees undermine NAFTA's basic labor standards, according to one union official, and could potentially draw further jobs from his country to North Carolina.

"In these states where labor laws are weak, it's the economic advantage of employers to set up shop," said Derek Fudge, the National Union's director of policy development. "North Carolina, with a unionization rate of 3 percent, would be very attractive for employers."

. . .

As the Democrats debate NAFTA, those on both sides of North Carolina's economic divide have moved on to more pressing realities.

"I've always been amazed that Hillary and Obama open their mouths about NAFTA," said Jim Chesnutt, the CEO of National Spinning, a yarn manufacturer based in rural eastern North Carolina. "I can deal with NAFTA. Hell, it's China and India and Vietnam that's killing me."

National Spinning once employed 2,800 workers across its factories; now it has 800, producing for an increasingly niche business that includes medical supplies and knitting yarn for craft stores. Chesnutt blames trade policy, but also federal regulation and currency markets: The worst problems began, he says, when Asian currencies collapsed in the late 1990s, releasing a flow of low-priced textiles into global markets. Automation has also contributed to the shrinking workforce: one of National's plants is "completely robotic," according to Chesnutt.

"Do I believe our company is still going to be in the yarn business five years from now?" asked Chesnutt. "Yeah, but we'll still be in those niche markets."

With their focus on NAFTA, the candidates rarely acknowledge the extent to which any of these other factors - including changes in productivity and in consumer demand - have affected American manufacturing, especially industries like textiles that require low skill and thrive on low margins.

The proximity of that economic model to the high-growth one elsewhere in North Carolina highlights the significant gulf that has opened between them. Observers of local business express frustration that the creative energy and intellectual capital developed in the labs have not inspired new ideas for the competitiveness of the yarn factories. The Research Triangle is one of the most dynamic high-tech centers in the country, and Charlotte, the state's largest city, has become a growing banking hub, but their pools of capital and brainpower remain inaccessible to other parts of the economy.

While the candidates focus on the threat of global competition, they rarely talk about the local challenges: linking the fates of winners and losers created in the same country.

"It's like football in your college and basketball in your college," Chesnutt said. "My industry couldn't get financing from that crowd if we wanted it. It's impossible to get financing in this country for manufacturing unless it's something sexy or high tech."

Sasha Issenberg is a reporter in the Globe's Washington bureau and the author of "The Sushi Economy: Globalization and the Making of a Modern Delicacy."



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NAFTA a total lie put on the America people . The day the Senate voted on it i watched alday on C-Span . Early morning was the freshmen Senators speaking on nafta . Later in the day the more powerful players came up an gave their little speech. At the end of the day Mitchell and Dole and Dick Gerpharn<spell> ended the speeches with all and i mean all denouncing nafta as the worst bill to "Ever" hit their deaks . Then the bell ring and they all voted . With in 1:37 seconds nafta had passed with hardly a Na . This is our government . People are still falling for lies or spin and praying for miracles . Niether obama or billary can do anything bout nafta . It must be the Congress !! NAFTA has certainly broke our nation along with a selfish greedy goverment with no logic on M3 or true inflation ! ILLEGALS will not pay the bills of bad goverment at $8 an hr .