Expert: Dennis - 12/3/2011

Question
Dennis
A few years ago when NAFTA came in, there was supposed to be a 'giant sucking sound' as jobs left the US for Mexico.
That didnt happen. Instead they all went to China, and we dont even have frre trade with them?
If someone wants cheap labour tp prodecue inexpensive goods, wouldnt it be better and closer to build a factory in Mexico? Wouldnt that also ease the tide of immigrants? Thanks for your thoughts!

Answer
Sorry for the delay. I thought I already answered this question. Maybe the answer went to a black hole somewhere.

Anyway, a number of companies did go to Mexico to take advantage of NAFTA, but most of the decline in jobs was/is more roundabout. A lot of companies send orders for goods to China (or wherever) because it is cheaper for them to produce and ship them to the U.S., than it is to make them here. A local example is a company called Plano Plastics, located in Plano, Illinois (not very far from me). They have a couple of factories that make things here, but 85% of their goods are made in China. Some need assembly here, but others go straight from the shipping docks in San Diego to Walmart and Target. Plano hasn't moved or closed any factories here, but they stopped hiring because it is more economic for them to have things made to their specifications in China (or wherever) and have them shipped here.

An example of a company using NAFTA that cost U.S. jobs would be Volkswagen Motors. They built a new factory in Mexico and ship their cars north to take advantage of NAFTA - no duties or taxes, and no jobs in the U.S. They could have built that factory in Canada and take advantage of NAFTA, but they would still have to deal with Canadian Auto Worker Unions. So they built it in Mexico.

As for immigration, low skilled, undereducated workers go wherever there are jobs for low-skilled, undereducated workers. As long as the fruit and vegetable growers of the south and west use manual labor to harvest crops, migrant workers will be there. As soon as they start using machines to harvest crops, the reason for immigration is gone.

I once read a study that tracked migrant movement in the U.S., both in crops and in the hospitality industry. Both follow the seasons. Your immigrant maids, bus boys, waiters, etc. go from one area of the country to another as various holidays and vacations occur. Its very similar to the migrant crop workers. Basically, as long as there are low-paying jobs, there will be migrants. If you ever go on a cruise ship leaving from Miami, you will be amazed how almost no one who works on the ship is from the U.S. They all have 10-12 hour shifts on the ship, and they move to different cruise lines as the seasons change.

So to summarize, NAFTA did have an effect on jobs. It reduced some that existed, but mostly prevented new ones from being introduced.