Despite U.S. Job Losses, NAFTA Benefits Textile, Apparel Industries

Article ID: 14994

Released: 18-Sep-1999 12:00 AM EDT

Source Newsroom: Wake Forest University Babcock Graduate School of Management

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Contacts: Eric Whittington or Patricia Divine
(336) 758-5030 or (800) 722-1622 eric.whittington@mba.wfu.edu

WINSTON-SALEM, N.C. - To paraphrase Mark Twain, the demise of the textile and apparel industries in the United States due to the North American Free Trade Agreement is greatly exaggerated, according to Gary Shoesmith, director of the Center for Economic Studies at Wake Forest University's Babcock Graduate School of Management.

Gary Shoesmith, associate professor of economics and director of the Center for Economic Studies at Wake Forest University's Babcock Graduate School of Management, delivered that assessment earlier this month as part of North Carolina Gov. Jim Hunt's economic development and trade mission to Latin America. Gov. Hunt and a group of more than 50 business, education and government leaders from across the state toured Mexico, Argentina and Brazil Aug. 16-28. Shoesmith made his presentation on the impact of NAFTA on Aug. 17 in Monterrey, Mexico.

More than 100,000 textile jobs and nearly 300,000 apparel jobs have been lost in the United States since 1993, and the United States now has a merchandise trade deficit with Mexico. But Shoesmith says shipments in both industries are up, thanks in large part to NAFTA, and the job losses and trade deficit that many observers blame on NAFTA have other causes.

"NAFTA has accelerated the redistribution of labor-intensive manufacturing away from the United States, redirected more of the new industry capacity toward Mexico rather than Asia and accelerated the automation of U.S. industry," Shoesmith says. "NAFTA has also resulted in lower prices for U.S. consumers and created many export opportunities for U.S. companies. Beyond that, NAFTA has been mistakenly blamed for hundreds of thousands of U.S. job losses."

Trade with Mexico has increased dramatically since NAFTA took effect in 1994. From 1993-98, U.S. exports to Mexico increased 89 percent, while U.S. imports from Mexico increased 137 percent. Overall, U.S. trade with Mexico has grown at more than double the rate of U.S. trade with the rest of the world, but Shoesmith says that process began well before NAFTA was enacted.

Mexico began reducing its tariff rates in 1985, and those rates have dropped 20 percent overall since then. NAFTA reduced Mexican tariffs by 5 percent. U.S. tariffs also dropped, from an average of just over 4 percent in 1993 to less than 2 percent. The U.S. trade deficit with Mexico, though, did not appear until 1995, 10 years after trade liberalization started.

The Mexican currency crisis and recession also played major roles in the trade situation, according to Shoesmith. The peso depreciated more than 50 percent versus the dollar between late 1994 and 1995, substantially reducing the prices of Mexican products in the United States. Since 1995, the peso has further depreciated 30 percent against the dollar.

"The fact is the U.S. merchandise trade deficit with Mexico is a result of the Mexican financial crisis in 1995, which had nothing to do with NAFTA," Shoesmith says.

The U.S. textile industry has seen more than 200 percent growth in overall trade with Mexico since 1993, but the result has been an increase in the U.S. textile trade surplus with Mexico of more than $400 million. The American Textile Manufacturers Institute estimates that two-thirds of all clothing that comes into the United States from Mexico is made from American yarn or fabric. Clothing from Asia contains almost no American fabric.

Many textile jobs have been lost since 1993, but Shoesmith says that during the same period U.S. textile shipments have increased more than $11 billion, or 11.5 percent. U.S. textile shipments per worker have increased 28 percent since 1993, and textile mill production wages have increased 21 percent. That compares to an increase of 15 percent in U.S. manufacturing wages overall.

"These figures suggest that increased automation and productivity are the major reasons for the decline in employment," Shoesmith says. "Despite the many news reports to the contrary, the U.S. textile industry is thriving under NAFTA."

The apparel industry offers a similar story. Nearly 300,000 apparel jobs have been lost since NAFTA took effect, but apparel shipments have increased 3.4 percent since 1993. Apparel shipments per worker have increased 40 percent, and average production wages in the industry have increased 23 percent.

"This is not to minimize the fact that there have been numerous apparel plant closings since NAFTA and a substantial increase in the industry's trade deficit with Mexico," Shoesmith says. "But despite all this, U.S. apparel production is still growing."

The textile and apparel jobs that have been lost to Mexico would have been lost eventually anyway, but without NAFTA more of those jobs would have been transferred to Asian economies instead of Mexico, Shoesmith says. Even with substantial productivity gains in textiles and apparel, U.S. trade deficits outside of North America have continued to expand in both industries. In textiles, Asia (including China and Japan) accounts for only 15 percent of U.S. textile exports but 45 percent of U.S. textile imports. In apparel, Asia accounts for 10 percent of U.S. exports but 56 percent of U.S. imports.

The United States has gained many export opportunities as well, particularly in textiles but also in other industries, according to Shoesmith. The Southeast and North Carolina, in particular, have benefited from NAFTA. Southeast exports to the world have increased 62 percent since 1993, but exports from the region to Mexico have jumped 150 percent during the period. North Carolina has led the way with export growth to Mexico having increased 329 percent.

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Information on the Babcock School, which is ranked among the top 11 percent of America's accredited graduate business schools by U.S. News & World Report, is available on the World Wide Web at www.mba.wfu.edu.

For more information or to arrange an interview with Gary Shoesmith, please call Eric Whittington or Patricia B. Divine at (336) 758-5030 or (800) 722-1622. Shoesmith also provides detailed economic data through the Center for Economic Studies' Interactive Southeast Economic Database. The menu-driven database includes detailed national, regional, state and metropolitan area data on employment, average hourly earnings, housing permits and exports, plus leading and coincident indicators. The database can be accessed on the Internet at www.wfuces.org.


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