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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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