More Free Trade Confusion

In poking about the internet looking for commentary on the whole South Korea FTA/John Edwards thing, I came across this gem at

But NAFTA’s impact is even more apparent in Mexico where real wages dropped by 80 percent and unemployment rose from nine to 15 percent. Approximately 1.5 million Mexican farmers were forced to give up farming because they were unable to meet the price of corn produced by massively-subsidized U.S. agribusinesses. Undersold and without many other job options in a depressed economy, Mexican farmers sought low-wage work in the maquiladoras or risked the dangerous journey to cross the heavily militarized U.S.-Mexico border. Mexico, where maize originated, is now facing riots by its people over high tortilla prices because the growing demand for ethanol have inflated corn prices on the global market. These are the effects of NAFTA that free traders must address when they espouse the limitless benefits of an integrated continental economy.

Am I missing something here? I mean, I'll readily admit that I'm not an expert on economics. But this strikes me as awfully fishy, enough so that I'd think pretty much anyone with even a very basic understanding of, well, reading comprehension ought to be able to detect it. I mean, here's the thing. If corn prices are going up because of a growing demand for ethanol, then how on earth can U.S. agribusinesses be driving Mexican farmers from business? If, pre-NAFTA, a Mexican farmer can produce corn for $5/bushel and then rising demand for ethanol pushes the price of corn to $6/bushel, then why does the fact that an American farmer can produce corn for $4/bushel really matter? As long as the market price of corn is higher than the cost to produce it, Mexican farmers will be just fine. NAFTA will drive Mexican farmers from the corn market only if American producers lower the price of corn below the $5/bushel price at which Mexican farmers can produce it. But if the price of corn is now higher than it used to be, then obviously Americans are not undercutting Mexican farm prices. So how exactly did NAFTA harm Mexican farmers?

Unfortunately, there's nothing particularly unique about this sort of argument; indeed, it seems to be a fairly standard leftist critique of NAFTA. The only unusual thing at all is that, in this case, the internal contradiction was laid out in one single, easy-to-quote paragraph. What's puzzling to me, though, is that I see this argument advanced by some (otherwise) pretty smart people. I just don't get it. The basic logic of the argument seems faulty: NAFTA harmed Americans by costing us jobs and it harmed Mexicans by costing them jobs, too. So where exactly did the jobs go? A trade agreement might result in a net loss of jobs for one of the trading partners. But a bilateral agreement can't really result in a net loss for both countries, can it?

Besides, if all those nice, cushy manufacturing jobs that we're so worried about losing really do end up in Mexico, the displaced farmers can always just work there, right? So what's the problem here?

Share this