NAFTA – A Hit with Manufacturers

I was talking to a small domestic manufacturing company owner the other night and I asked him what he thought about NAFTA. His answer surprised me in that he was neutral to slightly positive about the effect of NAFTA on his business. In fact, I was so surprised that I had to ask the question again to make sure I heard the answer correctly the first time. When I asked why he said that he had some improved access to additional markets, but in general it did not affect his business.

I started thinking back to all the bad things I remember hearing about NAFTA. One of the main complaints was that all our manufacturing jobs would migrate either south or north of the border to Mexico and Canada.

I also remember hearing that Mexico’s unions were strong supporters of NAFTA. I, like many Americans, assumed that it was because then knew that jobs would just start moving across the border almost immediately. So I asked the manufacturing company owner if he saw increase competition from other companies based in or that had relocated manufacturing to Mexico or Canada. His answer was that he has always had competition and that it was not significantly more or less after NAFTA.

Personally, I did not expect that all manufacturing jobs would be transplanted to Mexico, and to some extent Canada. What I did expect was that fifteen years later, since NAFTA went into effect in 1994, we would have seen some erosion of our manufacturing base and an overall negative view of NAFTA. I could see multinationals being positive on NAFTA, but not the smaller domestic manufacturers.

So with conflicting information I did what almost anybody would do, I started to Google for additional information. I found a report published in June ’08 by Deloitte Research titled Made in North America. That report indicated that 49% of the responding manufacturing companies felt NAFTA had a positive impact on their business. In addition, another 41% were neutral on NAFTA. To be fair, the poll taken included Canadian and Mexican manufacturers, but 45% of the poll participants were American companies.

The report and my manufacturing contact both seem to reflect similar views. NAFTA did not kill American manufacturing as feared. That is not to say that some jobs were not lost or that America is not losing manufacturing jobs at an alarming rate. It is just that we can not blame it on open trade agreements like NAFTA.