The Uncomfortable Truth About Nafta Analysis

John Frezza
US History

In his article The Uncomfortable Truth About NAFTA: It’s Foreign Policy, Stupid published November 1993, Paul Krugman breaks down the North American Free Trade Agreement and arguments the opposition brings to the table. These arguments include NAFTA affecting the number of jobs in the United States, helping or hurting the environment, potential benefit, wage decrease for unskilled workers and foreign policy.
When it comes to jobs being impacted by NAFTA, Paul Krugman argues that jobs will neither be created nor lost. NAFTA’s potential impact on jobs would be neutralized by monetary policy. Krugman uses an example where a car driving from Boston to New York represents the U.S economy. As the car is driving, average

speed serves as employment and a mere tailwind exhibits NAFTA. As you can see in this example, the affects of NAFTA on jobs in the United States are miniscule. The last piece to this scenario is the Federal Reserve acting as the driver controlling the speed of the car. After analyzing Krugman’s rundown, his perspective is clear.
The opposition believes one of the most convincing arguments regarding NAFTA is the potential environmental impact it could have due to U.S. industry moving South. Krugman Immediately disagrees with the opposition by claiming the environment would be healthier in Mexico as a result of NAFTA. Export factories would enact environmental laws and move North outside of the City, resulting in a pollution free location. Keep in mind that Krugman does not compare Mexican Factories to U.S. factories in terms of cleanliness.
In the eyes of Paul Krugman, NAFTA has three small perks. An increase in the level of output resulting in higher U.S. efficiency, easier exploitation of goods via economies of scale and more competition which is good for small business and bad for monopolies. These advantages are small because prior to NAFTA the U.S. and Mexico already had a similar trade agreement. Krugman argues NAFTA would make a small impact on the U.S. and a larger impact on Mexico, factoring in current economic conditions and GDP.
Low wage workers in the United States would not suffer from a wage decrease due to NAFTA according to Paul Krugman. Wages paid by jobs in the United States are not affected by agreements made between the U.S. and other countries. Of course, this is unique to the U.S. and Krugman goes on to explain how Mexico is a different story. Krugman elaborates on this point with confidence claiming the opposition has no proof.
Although Paul Krugman wrote passionately about the previous topics regarding NAFTA opposition, foreign policy seems to interest Krugman the most. Krugman claims that based on minimal potential advantage to the U.S. and huge upside potential to Mexico, The North American Free Trade Agreement would be the United States offering a helping hand. In the eyes of Mexican President Carlos Salinas de Gortari, NAFTA is a promise to the Mexican people that things will get better. Krugman argues that Mexico should not have agreed to NAFTA at all and that the benefit to Mexico was better when Mexico had control over tariffs. Krugman concludes his foreign policy argument by saying financial crisis will hurt Mexico if NAFTA does not go through.
Paul Krugman used the NAFTA opposition to his advantage by questioning each argument and making his own assessment. jobs in The U.S. are affected the Federal Reserve will offset the impact, the environment will be impacted positively through Mexico due to factory relocation, the U.S. will have relatively low benefit and The U.S. is lending a helping hand to Mexico through NAFTA. Only time will tell whether Krugman and his predictions are accurate or gibberish.