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Appendix A: Calculations supporting Gary Hufbauer’s and Jeffrey Schott’s Claim that Passage of NAFTA would Create 130,000 Net Jobs in the United States by 1995

 

(A) In “North American Free Trade: Issues and Recommendations”, Hufbauer and Schott write on pages 55 and 56: “U.S. jobs are assumed to be created at the rate of 14,500 jobs per billion dollars of net improvement in the U.S. trade balance. Thus, about 130,000 additional U.S. jobs are created under a NAFTA scenario.” ($9.0 billion times 14,500 jobs per billion dollars) The ratio of 14,500 jobs per one billion dollars comes from 1986 statistics on dollars and workers involved in exported manufactured products as published in the Statistical Abstract of the United States, 1990. Where does the $9.0 billion figure come from?


(B) Hufbauer and Schott write on page 53: “Mexican imports of goods and nonfactor services in 1995 are assumed to equal the sum of Mexican exports in 1995, plus remittances from abroad (about $3.9 billion), plus the excess of capital inflows over debt-service requirements.” In this sentence, we can see that the authors define the dollar amount of Mexican imports as being greater than the dollar amount of Mexican exports - namely, imports equal exports plus remittances plus excess capital inflows. So long as remittances and excess capital inflows are a positive number, Mexico will run a trade deficit with respect to the United States, by this definition. Conversely, the United States will run a trade surplus with respect to Mexico. That is what the authors assume.


(C) Now the authors calculate the difference between Mexican imports from the U.S. if NAFTA passed and if it did not pass; and also the difference between Mexican exports to the U.S. if NAFTA passed and if it did not. This difference will represent the imports or exports attributable to NAFTA. Notice that Mexican imports will always be greater than exports because of assumptions made in(B).

(1) For imports, this is the difference between $78.1 billion (if NAFTA passed) and $55.8 billion (if NAFTA did not pass), or $22.3 billion.

(2) For exports, this is the difference between $62.2 billion (if NAFTA passed) and $51.9 billion (if NAFTA did not pass), or $10.3 billion.


(D) The difference between Mexican imports and exports attributable to NAFTA is $12.0 billion ($22.3 billion - $10.3 billion). However, the authors state on page 55: “Mexico is assumed to purchase 75 percent of its imports ... from the United States and to sell 75% of its exports ... to the United States.” Therefore, to determine the U.S.-Mexican bilateral trade, we need to multiply both the imports and exports by .75. The same applies to their difference. $12.0 billion times .75 equals $9.0 billion. This is where the $9.0 billion figure in (A) comes from. The United States has a bilateral trade surplus in an amount equal to Mexico’s bilateral trade deficit. But Mexico’s deficit is assumed.


(E) To show the source of the numbers in (C), the authors assume that Mexican exports will increase by 11.2% annually if NAFTA passes but only by 7.9% annually if NAFTA does not pass. The starting point is $32.9 billion of Mexican exports in 1989. Therefore, if NAFTA passes, Mexican exports will be $62.2 billion in 1995; and, if NAFTA does not pass, they will be $51.9 billion in 1995.

(1) For imports: If NAFTA passes, we have the $62.2 billion in Mexican exports plus $3.9 billion in remittances from abroad plus $12 billion for net capital inflow, or $78.1 billion. If NAFTA does not pass, we have only $51.9 billion in Mexican exports plus the $3.9 billion in remittances from abroad and no net capital inflows, equaling $55.8 billion.

(2) For exports: If NAFTA passes, we have only the $62.2 billion in annual exports shown above. If NAFTA does not pass, we have only the $51.9 billion shown above.


(F) Looking sharply at the numbers in (E), we can see that the $12 billion difference identified in (D) is simply the $12 billion in net capital inflow which Hufbauer and Schott assume would come to Mexico if NAFTA passed but would not if NAFTA did not pass. The math is: $62.2 billion plus $3.9 billion plus $12 billion minus ($51.9 billion plus $3.9 billion) minus (62.2 billion minus $5l.9 billion). Remove the brackets and watch the pairs of numbers zero out until only the $12.0 billion is left. This figure comes from Hufbauer’s and Schott’s statement on page 55 that “a good part of the increment, some $12.0 billion, is financed by capital inflows attracted by the NAFTA.”


There’s nothing empirical about this study. Its conclusion is driven entirely by Hufbauer’s and Schott’s assumption of a net capital inflow to Mexico if NAFTA passed. Yet, the St. Paul Pioneer Press, the Wall Street Journal, and many other respected publications passed this study off to the public as evidence that NAFTA’s passage would create jobs.

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