While NAFTA alone has caused only a portion of the job losses in the industry since 1994, its implementation was symbolic of a sea change in U.S. trade policy. With NAFTA, the United States either gave free access or lowered barriers to imports of manufactured products from Mexico, a country with an economy less than one-tenth the size of the U.S. economy.
While Mexico (pop. 102 million in 1994) with its large supply of cheap labor could undercut U.S. wage rates, its consumers had little ability to buy finished U.S. products in large quantities. Unsurprisingly, the arrangement turned a small U.S. trade surplus with Mexico in 1994 to a $64 billion trade deficit in 2006.
This model was replicated in the Uruguay Round that the led to the formation of the World Trade Organization (WTO), China and Vietnam's accession to the WTO, and free trade agreements like those with Chile, Singapore, Morocco, the CAFTA countries, Peru, Colombia, and Panama. In addition, this model is the format for the ongoing negotiations in Doha Round and the recently completed free trade agreement with Korea.
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American Manufacturing Trade Action Coalition
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