Free Trade with Mexico: Protectionism Falls Flat

Opponents of a free-trade zone with Mexico, as proposed by the Bush administration, cannot make the usual protectionist complaint about the "absence of a level playing field." The whole idea of a free-trade zone is to level trade barriers on both sides to zero.

Nor can poor Mexico, with one-tenth our per-capita income, be vilified like Japan, as a monster out to suck our economic life's blood. Instead, the argument is nearly the opposite: Mexico is too primitive and impoverished, with third-world wages and environmental standards. Unrestricted competition with such a country, the case goes, will drag the U.S. economy down to Mexico's level.


The case is wrong. It is impossible for a nation to become poorer by buying the products of cheap foreign labor. Average hourly compensation in 1989 for U.S. workers was $14.31; for Mexicans, $2.32. The difference: $11.99 an hour. But even assuming, incorrectly, that American and Mexican labor are equally productive, there is no national advantage to be gained in barring imports from Mexico.

If labor is available for $2.32, paying $14.31 instead doesn't create an extra $11.99 of wealth. It creates nothing. That extra $11.99 is drained from the rest of the economy. The U.S. economy could buy the products in question from Mexico, pay the Americans thereby thrown out of work $10 an hour to do absolutely nothing, and still be $1.99 better off.


Of course, President Bush is not proposing to pay anyone $10 an hour not to work. He wants the overall benefit of unrestricted trade with Mexico without worrying about the costs to individuals who lose their jobs or face downward pressure on their wages. These are the same people already suffering from the trend toward greater income inequality.

A trade pact will create jobs as well, by opening up Mexican markets and by giving Mexicans more dollars to spend. Many of the consumers who benefit from access to cheaper Mexican goods will also be poor: buyers of clothes, shoes, food. Nevertheless, some of that $11.99 ought to be spent on training Americans to do jobs that Mexicans can't. As for contamination from Mexico infecting us with a Mexican standard of living, what will do so is failure to make sure that our own labor is genuinely more valuable.

And doesn't fairness to Mexicans deserve some consideration as well? The AFL-CIO argues nonsensically that a free-trade pact will destroy jobs and reduce wages in the U.S., but will not create jobs or raise wages in Mexico. In fact, every job lost by an American will go to a Mexican who is poorer and more desperate.

Opponents of the pact argue that to import the products of labor at wages no American would tolerate is to implicate the United States in immoral exploitation. And no doubt there is some level of pay or working conditions, approaching slavery, to which this analysis correctly applies. But many Mexicans are glad for work at wages an American wouldn't consider -- you would be too, given their alternatives, such as starvation. Piously denying Mexicans such jobs does nothing to improve the alternatives.

The environmental case against free trade with Mexico muddles two questions. One is the effect of Mexican industry on the U.S. environment. Clearly the U.S. is right to stop Mexican factories from polluting the environment on our side of the border. This is true whether or not the plants in question are making goods for export to the U.S.

The second question is whether Mexico's lower environmental standards for itself amount to unfair competition, leading to inevitable erosion of our own standards. The answer is not necessarily. It makes perfect sense for a poorer country to have lower environmental standards than a richer one. Clean air and water are luxury goods; you can afford more of them as you advance.

The United States didn't have today's environmental standards when we were as poor as Mexico is, and if we had we wouldn't be as rich as we are. The same is true, to some extent, of worker health and safety standards. If lower standards enable Mexico to, in essence, take on some of our dirty work, it can be a good deal for both societies.

On the other hand, there is a problem in an era of global capital mobility. Government regulation, to work, must be a monopoly. But companies can play governments off against one another, by threatening to move. As a result, two societies can find themselves with lower environmental standards than either might wish to have. It therefore makes sense for countries like Mexico and the United States to negotiate certain minimum shared environmental standards.


Protectionists like to say that free-trade ideology is a hangover from the period after World War II. When the giant American economy dwarfed all its competitors, it was easy for Americans to support competition without trade barriers. Life is different now. But compared with Mexico, the United States is still a mighty giant. All the warnings about being dragged down by poverty-level wages, etc., now made about trade with Mexico, could have been made in the 1940s about trade with Europe.

It's not the 1940s anymore, and we all have our private moments of doubt about whether the U.S. is fit any longer to compete against a rival like Japan. But must we shy away from competition with Mexico? Pathetic, if so.

The TRB column appears in The New Republic.