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When the North American Free Trade Agreement In addition to lower prices, the shift in textile
(NAFTA) went into effect in 1994, many expressed production to Mexico also benefited the U.S. economy
fears that large job losses in the U.S. textile industry in other ways. Despite the move of fabric and apparel
would occur as companies moved production from production to Mexico, exports have surged for U.S.
the United States to Mexico. NAFTA opponents yarn makers, many of which are in the chemical
argued passionately, but unsuccessfully, that the industry. Before the passage of NAFTA, U.S. yam
treaty should not be adopted because of the producers, such as E. I. du Pont, supplied only small
negative impact it would have on U.S. employment. amounts of product to Mexico. However, as apparel
production moved to Mexico, exports of fabric and
A quick glance at the data available 10 years after
yarn to that country have surged. U.S. producers
the passage of NAFTA suggests the critics had a point.
supply 70 percent of the raw material going to
Between 1994 and 2004, production of apparel fell
Mexican sewing shops. Between 1994 and 2004, U.S.
by 40 percent and production of textiles by 20
cotton and yarn exports to Mexico grew from $293
percent and this during a period when overall U.S.
million to $1.21 billion. Moreover, although the U.S.
demand for apparel grew by almost 60 percent.
textile industry has lost jobs, advocates of NAFTA
During the same timeframe, employment in textile
argue that the U.S. economy has benefited in the form
mills in the United Stated dropped from 478,000 to
of lower clothing prices and an increase in exports
239,000, employment in apparel plummeted from
from fabric and yarn producers. NAFTA supporters
858,000 to 296,000, while exports of apparel from
argue that trade has been created because of NAFTA.
Mexico to the United States surged from $1.26
U.S. consumers and producers in certain sectors are
billion to $3.84 billion. Such data seem to indicate
capturing the gains from trade. As always, the
that the job losses have been due to apparel
establishment of a free trade area creates winners
production migrating from the United States to
and losers ‐ and the losers have been employees in
Mexico.
the textile industry ‐ but advocates of free trade argue
There is anecdotal evidence to support this assertion. that the gains outweigh the losses.
For example, in 1995, Fruit of the Loom Inc., the
largest manufacturer of underwear in the United Case Discussion Questions
States, said it would close six of its domestic plants 1. Why did many textile jobs apparently migrate out
and cut back operations at two others, laying off of the United States in the years after the
about 3,200 workers, or 12 percent of its U.S. establishment of NAFTA?
workforce. The company announced that the
closures were part of its drive to move its operations 2. Who gained from the process of readjustment in
to cheaper plants abroad, particularly in Mexico. the textile industry after NAFTA? Who lost?
Before the closures, less than 30 percent of its 3. With hindsight, do you think it is better to protect
sewing was done outside the United States, but Fruit vulnerable industries such as textiles, or to let
of the Loom planned to move the majority of that them adjust to the painful winds of change that
work to Mexico. For textile manufacturers, the, follow entering into free trade agreements? What
advantages of locating in Mexico include cheap labor would the benefits of costs of protection be?
and inputs. Labor rates in Mexico average between What would the costs be?
$10 and $20 a day, compared to $10 to $12 an hour
for U.S. textile workers. Sources
1. C. Burritt, “Seven Years into NAFTA, Textile Makers Seek a Payoff in
However, job losses in the U.S. textile industry do Mexico,” Atlanta Journal‐Constitution, December 17, 2000, p. Q1.
not mean that the overall effects of NAFTA have 2. I. McAllister, “Trade Agreements: How They Affect U.S. Textile,”
been negative. Clothing prices in the United States Textile World, March 2000, pp. 50‐54.
have also fallen since 1994 as textile production 3. J. Millman, “Mexico Weaves More Ties,” The Wall Street Journal,
August 21, 2000, p. A12.
shifted from high cost U.S. producers to lower‐cost 4. J. R. Giermanski, “A Fresh Look at NAFTA: What Really Happened?”
Mexican producers. This benefits consumers, who Logistics, September 2002, pp. 43‐46.
now have more money to spend on other items. The 5. G. C. Hufbauer and J. C. Schott, NAFTA Revisited: Achievements and
Challenges, Institute for International Economics, 2005.
cost of a typical pair of designer jeans, for example, 6. O. Cadot et al, “Market Access and Welfare under Free Trade
fell from $55 in 1994 to about $48 today. In 1994, Agreements: Textiles under NAFTA,” The World Bank Economic
blank T‐shirts wholesaled for ‐$24 a dozen. Now they Review, 19, 2005, pp. 379‐405.
7. American Textile Manufactures Institute at www.atmi.org/index.asp;
sell for $14 a dozen. and U.S. Department of Commerce Trade State Express Web site at
http://tse.export.gov/.