Globalist Bookshelf

NAFTA: Toward the Continental “We”

How has NAFTA created a truly singular North American society?

Takeaways


We can start again, but we cannot start over. NAFTA has permanently merged the economic geography of the United States, Canada and Mexico. Our domestic economy now stretches not just from the Atlantic to the Pacific, but from the Arctic to Chiapas.

Despite U.S. homeland security policies, anti-immigrant sentiment in border states and bursts of nationalism in Mexico and Canada, the "toothpaste" of NAFTA cannot be put back into the tube.

Bankers and brokers now deal with each other in a seamless web of finance. Car makers and food packagers are dependent on supplies and markets in all three countries. And the movement of people back and forth across the borders cannot be stopped.

Cultures are mixing — and new common rules will be needed. Like it or not, we are building a continental society.

The North American common market now contains more than 430 million people, with an annual GDP of close to $20 trillion. In 2003, Canada was the world's eleventh largest economy, and Mexico was number twelve.

When the U.S. political and business elite is finally forced to come up with a strategy for the country to work its way out of the debt trap, it will find itself hung by its own petard.

Twenty-five to 30% of the entire production of Canada and Mexico is now dependent on sales to the U.S. market.

The elimination or even substantial reduction of the U.S. trade deficit could thus do them substantial damage, as well as disrupt U.S. businesses with cross-border production and marketing.

It could plunge Mexico into an explosive social crisis, which, given the level of social and economic integration, would be a political nightmare.

Both Canada and Mexico, weaned from their traditional policies of economic independence, now depend on the U.S. market for growth, with 85 to 90% of Canadian and Mexican exports now going to the United States.

Between 1994 and 2001, U.S. investors supplied 58% and 46%, respectively, of the foreign direct investment into Canada and Mexico. The process has gone way beyond trade and investment relations.

Every day, more intra-continental connections in finance, marketing, production and other business networks are being hardwired for a seamless North American market.

Increasingly, the national economies are not simply selling each other goods and services, but producing together.

A large share of U.S. trade with Canada and Mexico occurs within the same or an affiliated firm. The auto industry, which makes up some 25% of U.S.-Canadian trade, is the most dramatic example.

Ford pick-up trucks are now assembled in Mexico's Cuautitlán, with engines coming from Canada's Windsor, Ontario, and transmissions made in America's Livonia, Michigan.

A car made in North America may, in its separate pieces, cross the borders dozens of times before it is finally sold.

The process of economic integration takes time. Businesses in one country have to learn how to outsource to another.

A manufacturer of refrigerators cannot simply shut down a plant in Iowa one week — and open up in Mexico the next. Except for the very largest, most businesses cannot make such shifts by themselves.

So an industry of lawyers and plant locators and accountants and fixers has to develop.

It also takes time for the experience of the first pioneers to feed back to the second wave of industrial firms wanting to relocate.

Where companies own the factory and land, they cannot easily pull up stakes. Typically, the company lets the old facility wear out, laying off small numbers of workers slowly while it prepares to relocate.

Often, the decision is made at the moment of expansion, or the shift to a new product line. It is nevertheless relentless.

To accommodate trade, transportation links are bending north-south. The Canadian federal government's 200-year transportation policy of linking Canada east-west, and later north to the undeveloped north, is now shifting to widen the routes to the U.S. market.

It is not the federal government in Ottawa that is driving this change. The provinces are shifting their road plans in response to the increasing demands from exporters and importers.

Mexican, Canadian and U.S. transportation companies have made plans for a seamless rail system through the continent. Kansas City Southern and its Mexican subsidiary call their service "NAFTA Rail."

By 1997, Canada and the United States had the most air connections of any two nations in the world. More than 15 million passengers flew between the United States and Mexico in 2003 — an almost 40% increase since 1994.

As the economic relationships proliferate, cross-border political connections have grown among the states and provinces, outside the formal foreign policy apparatus of the three governments.

Some 18 U.S. states now maintain offices in Mexico. Another 12 have offices in Canada. The large Canadian provinces have permanent commercial representation in the United States and Mexico.

Ontario and Quebec are associate members of U.S. Council of State Governments. The governments of the New England states and eastern Canadian provinces have a formal association — as do British Columbia, Alberta, the Yukon, Washington, Oregon, Idaho, Montana and Alaska.

The governors of the Great Lakes states and the premiers of their provincial counterparts meet regularly on regional problems.

On the southern border, the Border Governors Conference holds annual meetings between the heads of California, Arizona, New Mexico, Texas, Baja California, Chihuahua, Coahuila, Nuevo Leon, Sonora and Tamaulipas.

Formal commissions exist between Sonora and Arizona, Chihuahua and New Mexico, and Baja California and California.

The problem, of course, is that market integration lacks a social contract, which the history of each of the three nations tells us is necessary to make a wider economy work for everyone.

As Jorge Castañeda, who later became Mexico's foreign secretary, observed, NAFTA was "an agreement for the rich and powerful in the United States, Mexico and Canada, an agreement effectively excluding ordinary people in all three societies."

Not surprisingly, NAFTA has contributed to the upward redistribution of income, wealth and power in each nation. Now the great challenge is to create a much broader sense of community — a continental "we" — upon which to base a cross-border politics that can effectively promote the interests of ordinary people in this new North American economy.

Excerpted with permission of the publisher John Wiley & Sons, Inc. from “The Global Class War.” Copyright 2006 by Jeff Faux. This book is available at all bookstores, online booksellers and from the Wiley web site at www.wiley.com, or call 1-800-225-5945.

Tags: , , ,

About Jeff Faux

Jeff Faux was the founder, and is now Distinguished Fellow of the Economic Policy Institute.

Responses to “NAFTA: Toward the Continental “We””

If you would like to comment, please visit our Facebook page.