Why Democrats Aren’t Passing Trump’s New, Unimproved NAFTA. Democrats in both the House and Senate are resisting President Trump’s request that they approve his successor agreement to NAFTA (the clunky name to which is the United States-Mexico-Canada Agreement, or USMCA). The main sticking point, they say, is that the proposed new accord doesn’t do nearly enough to ensure the rights of Mexican workers—failing which, they’ll remain grotesquely underpaid and serve as a constant enticement to American businesses in search of cheap labor.
Those Democrats got a real point.
That point isn’t that Mexico isn’t as wealthy as the U.S. It’s that what wealth Mexico does generate simply doesn’t go to its workers.
In 2017, the International Labor Organization’s Global Wage Report tracked real wages between 2006 and 2015 in the G-20 nations with emerging economies. In China, real wages more than doubled during that period, and in every other such nation—India, Turkey, Russia, South Africa, Brazil, and Saudi Arabia—wages rose by at least 15 percent.
Except in Mexico. There, wages declined by roughly 15 percent.
That wasn’t because Mexico’s big employers—including the U.S. firms that opened factories there after NAFTA took effect in the early 1990s—were doing poorly. It was because they were keeping all the proceeds for themselves. An OECD study looking at the value created by corporations between 2008 and 2013 found that the share of that value going to employees in the eurozone was 73 percent, with shareholders and bondholders pocketing 25 percent. In the U.S., 69 percent went to employees and 21 percent to shareholders and bondholders. In South Africa, employees got 60 percent and shareholders and bondholders got 38 percent.
And in Mexico, employees got just 28 percent, while shareholders and bondholders raked in 71 percent. None of the 30 other nations in the OECD’s study had a labor share remotely that low, or a profit share remotely that high.
One thing these numbers make clear is that NAFTA not only failed to help Mexican workers; it actually enabled investors (and the governments doing their bidding) to double down on the poverty-wage model of development—or, more precisely, underdevelopment. In the mid-1970s, the OECD has documented, labor costs equaled about two-thirds of Mexico’s gross domestic product; 35 years later, they’d fallen to a bare 40 percent.
A major culprit behind this systemic theft of workers’ income has been Mexico’s “unions,” which aren’t really unions at all. Under the nation’s long-standing labor law, workers have had no right to vote for the union that represents them or the contracts their union agrees to with management. Those contracts are universally known as “protection contracts,” inasmuch as they protect employers from having to pay more than the barest subsistence wage to their employees.
Mexico now has a new leftist president (Andrés Manuel López Obrador—AMLO) who already has raised the nation’s minimum wage. It has a new legislature dominated by AMLO’s party, which is likely to enact a bill giving workers the right to create genuine unions that negotiate non-protection contracts. But local governments will still have the power to approve or veto many contracts, and as Nacha Cattan reports in the current Bloomberg Businessweek, “local leaders are rushing to clinch state-level pacts with pro-business unions that could curb the right to strike.”
Democrats in both houses, including Speaker Nancy Pelosi, have made clear that they’re not going to approve Trump’s new NAFTA unless it compels Mexico to free its workers from such dismal deals. As The Wall Street Journal has reported, Ohio Senator Sherrod Brown and Oregon Senator Ron Wyden have introduced legislation enabling U.S. and Mexican officials to jointly “audit and inspect facilities suspected of breaching labor standards in USMCA, and the U.S. would be allowed to reinstate tariffs on goods from factories in violation.”
In refusing to pass USMCA as it stands, congressional Democrats are championing both U.S. and Mexican workers. The legislative history of the United States is not full of moments of bolstering global worker solidarity, so on the eve of May Day, this moment merits a salute.