NAFTA: Scourge of Ohio?

In their shameless pandering for primary votes, both Barack Obama and Hilary Clinton have attacked NAFTA. The North American Free Trade Agreement is the treaty that largely eliminated tariffs and trade barriers between Canada, the US, and Mexico. Obama's/Clinton's attacks on NAFTA were particularly strong in Ohio, which has suffered serious job losses in the manufacturing sector.

I can understand why Ohioans would be interested in increasing jobs in manufacturing. Those jobs tend to pay more and have better benefits. Also, manufacturing has higher multiplier effects on a community's economy. That is to say, that to produce a dollar of sales, a manufacturing company will have to buy more from their suppliers, who in turn will have to buy from their suppliers, and so on. Manufacturing job are good.

The only problem is that repealing NAFTA will not do anything to help Ohio.

The real threat to American manufacturing is product imported from China, NOT Mexico. Through October of last year, the trade deficit with Mexico reached $4.8 billion. Not good, but largely driven by rising oil prices. Meanwhile, the trade deficit with China was $20 billion. For October alone. For the first ten months of 2007, our trade deficit with China was over $200 billion.

In my previous job, I worked for a job shop company. We made components that other companies used in their assemblies; parts for everything from cars to cosmetics. Over the years several of our customers set up operations south of the border. In every case the purchasing decisions were still made in the US, and we continued to hold those contracts. We shipped components to Mexico for assembly, and then the products were shipped back across the border for sale.

Starting in the late '90's a different trend emerged. Product started coming in from China. Sometimes we would make one or two shipments of parts across the ocean before being told "thank you, we have local sources now, we will not be buying any more parts from you." More often we were just told that our customer was closing his doors.

To an American manufacturer, China is a threat, Mexico is an opportunity.

But let's say repealing NAFTA would bring jobs back to the US. That still wouldn't help Ohio. Why not? Because if companies move operations back to the States, they will move them back to Tennessee, Alabama, or Missisippi, which is where the foreign automotive plants and their suppliers are setting up shop. Ohio has a high tax, union friendly business environment, unlike the more probusiness states of the Southeast.

Maybe Ohioans should look at themselves, before buying the line that their problems lie south of the border.