NAFTA was approved by Congress in November 1993. That year, the United States had a $1.6 billion trade surplus with Mexico, down from $5.7 billion the year before. The proponents of the new agreement argued that the “opening” of Mexico would reverse this trend.

Home to 90 million people, Mexico was portrayed as a “big emerging market” which President Clinton claimed could revive the U.S. economy. Clinton came into office with a very pessimistic view of America’s economic future. Administration reports regularly asserted that “as a mature economy with few domestic opportunities for growth, we must reach the 96 percent of our customers who live outside the United States.” That Mexico lacked the money to buy American-produced goods in volume was never considered. Mexico’s GDP was only $366 billion when NAFTA was signed (less than six percent of the size of the U.S. economy), and Mexico was running a $24 billion current account deficit. Not only were Mexicans poor, but the ability of their government to finance more imports had also reached its limit.

Mexico went into financial crisis in 1994, requiring a $54 billion bailout package, financed primarily by the United States. In order to restructure its debts, Mexico had to generate a trade surplus. Between 1992 and 1997, Mexico increased its exports to the United States by 144 percent, running up some $50 billion in trade surpluses between 1995 and 1997 alone. Mexico’s 1998 trade surplus with the United States will be around $16 billion. But instead of applying this windfall to its international debt, Mexico has used it to attract foreign investors and to pay for imports from Europe, where Mexico still runs a trade deficit.

The Clinton administration still claims that “NAFTA provides an unprecedented set of comprehensive market opening rules that have expanded opportunities for U.S. goods and services in Mexico.” Yet the deep peso devaluation, from 3.5 per dollar in l993 to 9.9 per dollar in November 1998, raised the prices of American goods in Mexico more than NAFTA tariff cuts lowered them. Thus NAFTA has not lowered the cost of U.S. exports, only of Mexican imports.

Exports to Mexico did increase 76 percent between 1992 and 1997, but the increase has consisted primarily of components to be assembled in Mexican factories for export back to the United States as finished products. The peso devaluation aided this process by lowering wages and other production costs in Mexico.

The largest American export category is auto parts, $6.8 billion worth in 1997. (In contrast, the United States exported only two billion dollars in finished cars and trucks.) That same year, the United States imported $9.4 billion in cars and trucks and $10.8 billion in auto parts from Mexico. All across the country, American parts suppliers are being told to close their plants and head south or lose their contracts to Mexican firms. The “giant sucking sound” only gets louder.

The automotive industry accounts for two-thirds of our trade deficit with Mexico. There are no Mexican auto makers, only foreign firms —American, Japanese, and German—which have built factories in Mexico. Mexican factories now export more cars and trucks to the United States than American factories export to the rest of the world. The same pattern is evident in other industries.

The Clinton administration knew from the start that this would happen. In 1994, the International Trade Commission’s annual report stated that “Having U.S. materials processed or U.S. components assembled in Mexico increases the competitiveness of U.S. producers of labor-intensive articles with Asian producers on the U.S. market” (emphasis added). Rather than protect the wages of American workers from cheap foreign labor, NAFTA was designed to protect the profits of corporate America by providing a pool of cheap foreign labor closer to home. The ITC calls this “production sharing.”

When parts are exported to Mexico for assembly, jobs are lost in the United States. In the past, these components were shipped across town or across state, to other American factories, to be assembled by American workers. As a result of NAFTA, what used to be a domestic transaction has become an international one; what used to be a positive addition to our GDP now represents a loss of economic activity in the United States. So while NAFTA apologists trumpet the rise in exports to Mexico over the past few years, the numbers alone don’t tell the real story.