In the post-Cold War era, it is widely expected that history will be made through exertions of economic rather than military power.  Wars will occur, of course, but they will not involve the major powers, who instead will compete economically.  Some analysts and politicians (among them, Edward Luttwak and House Majority Leader Dick Gephardt) expect this competition to be every bit as fierce and zero-sum as old-style geopolitical maneuvering was, and some (among them, Margaret Thatcher) see the world's major nations forming into three eco-political blocs, denominated by their dominant currencies: the EC, plus Eastern Europe and Scandinavia, would be the ``deutschemark zone''; Asia would be the ``yen bloc''; and the Western Hemisphere would be the ``dollar bloc.''  Especially if the dominant players cannot come to terms through the GATT, it is feared that trade wars will erupt between the blocs, as each tries to keep out the other's products.

If this is what the future holds, it will be indispensable for the United States to form its bloc.  Indeed, it is close to conventional wisdom in Congress and elsewhere that preparing for a trade war is the best reason for forming a Western Hemisphere ``dollar bloc.''  But the Bush administration has other ideas--it urgently wants to avoid trade wars if at all possible.  Ideally, according to Zoellick, blocs won't even form, as American, Asian, and European nations trade freely and cooperate politically.  To this end, the administration is pushing GATT, is institutionalizing ties with the EC, and helped form the Asian-Pacific Economic Cooperation Group.  Realistically, though, a nascent hemispheric free-trade zone is a good lever in the GATT talks, enabling the United States to say to Europe and Japan, in effect, "If you want to play bloc warfare, watch out.  Our bloc is bigger than yours."  This strategy may not work, however, as Europe and Japan seem determined to maintain subsidies and import restrictions on agriculture, threatening to collapse the Uruguay Round.

If this happens, the administration has another fall-back strategy, in which a hemispheric agreement would also play a vital role.  Bush aides want to link Europe, Asia, and the Western Hemisphere through inter-bloc trade agreements that would set the standard for the rest of the world.  By one strategy or another, Zoellick thinks it should be possible to avoid having the Cold War era devolve into the trade war era, and instead to build a community of market-oriented democracies that encompasses key areas of the globe.  NAFTA is thus a vital piece in the administration's world strategy.

The Labor Lobby

Grand schemes, however, are often confounded by mundane realities, and NAFTA is being challenged by a coalition of U.S. interest groups--led by organized labor and including environmentalists and some industry groups--which fear that free trade will severely damage their constituents.  The first attempt to block the agreement was mounted in early 1991, when the administration asked Congress for a two-year extension of so-called ``fast-track'' authority to enable it both to commence NAFTA talks with Mexico and continue the Uruguay Round negotiations.  ``Fast track'' is Congress's guarantee that when a trade pact is negotiated, it will either be approved or disapproved by Congress, and not subjected to an endless amendment process.  Mexico served notice that it would not begin NAFTA talks except under fast-track authority.

In May, the administration won the fast-track fight--by the strong margin of 59-36 in the Senate, but by only 231-192 in the House, with the Democratic majority splitting 170-91 against the administration.  Some opponents argued that fast-track authority constituted an abdication of congressional prerogatives, but the fundamental argument revolved around the substantive effects of NAFTA on U.S. employment and the environment.  This battle will resume when NAFTA is signed by U.S., Mexican, and Canadian officials and submitted to Congress for ratification.  It is likely to be bitter.

The timing of an agreement is a matter of no little importance.  Carla Hills ritually tells interviewers that ``there is no timetable.  We will take as long as necessary to negotiate the best agreement that we possibly can.''  On the other hand, it is widely reported that the administration is pushing to have an agreement signed by late 1991 or early 1992, so that it can be debated and voted on by Congress before the national political conventions in July and August and the fall presidential campaign.  The administration would like Democratic presidential candidates to debate NAFTA among themselves in early presidential primaries, but to have it approved in time to list it among President Bush's accomplishments for the fall campaign.  (Among the president's likeliest Democratic challengers, Senator Al Gore and Governor Bill Clinton of Arkansas supported Bush on fast track, while Senator Tom Harkin and New York Governor Mario Cuomo opposed him.)

If approval is not possible by early 1992, it would be put off until 1993, but then it is likely to become an issue in Canada's national elections.  If Conservative Prime Minister Brian Mulroney loses the election--which current polls indicate is a strong possibility--the successor Parliament might well refuse to ratify NAFTA.  Timing is less a factor in Mexico, where Salinas, elected in 1988 for a single six-year term, will serve until 1994.  With Mexico's economy improving, Salinas currently enjoys a 75 percent approval rating and is expected to strengthen his legislative majority in parliamentary elections on August 19.  However, Mexican officials say that Salinas still wants an early agreement so that its economic benefits will allow his successor to continue the liberalizing program he has set in motion.

In the United States, the central battle over fast track was about jobs, and so will be the battle over ratification of NAFTA.  The agreement is virtually certain to be opposed by the American labor movement regardless of what the pact says about the key issues under negotiation--such as market access provisions for various products and services, rules of origin to prevent Europeans and Asians from using Mexico as a platform for penetrating U.S. markets, and methods of dispute settlement--and regardless of what promises the Bush administration makes about programs to compensate and retrain workers dislocated by NAFTA.  During the fast-track fight, the AFL-CIO argued that NAFTA ``would be an economic and social disaster for U.S. workers and their communities.''  A February 1991 AFL-CIO publication declared that

under current trade arrangements, tens of thousands of U.S. workers have lost their jobs, and tens of thousands more have seen employment opportunities vanish, as U.S. companies transferred production to Mexico, taking advantage of the poverty of Mexican workers and the absence of any effective regulations on corporate behavior.  A free trade agreement will only encourage greater capital outflows from the United States, bring about an increase in imports from Mexico, reduce domestic employment...and accelerate the process of deindustrialization that has confronted this country during the 1980s.

For labor, the central fact about U.S.-Mexican trade relations is that Mexican wages average one-tenth of those in the United States.  The legal minimum wage in the United States is $4.35, but continuing devaluation of the peso (from 600 to the dollar in 1986 to 3,000 today) has dropped the dollar value of the Mexican minimum wage to 49 cents an hour.  ``Why should firms invest in the United States,'' the AFL-CIO asked rhetorically, ``if they can move across the Rio Grande and dramatically reduce their labor costs?''  As a foretaste of things to come, the AFL-CIO cited experience with the maquiladora program established in the 1960s to allow U.S. industries to set up plants on the Mexican side of the border where U.S. parts would be shipped without duty, assembled by Mexican workers, and shipped back to the United States with duty charged only on the value added in Mexico.

In twenty years, the number of maquiladora plants has grown from 120 to 1,800 and the number of workers has gone from 19,000 to 500,000.  According to the AFL-CIO,

tens of thousands of workers across America in companies like Electrolux, Tyco, Zenith, Westinghouse, Farah, [cm;1]ge[cm;0], [cm;1]at&t[cm;0], [cm;1]gm[cm;0], Ford, Chrysler--to name only a few--have seen their jobs disappear to Mexico.  They, better than any model or projection, can describe the employment impact of this type of trading relationship.

Besides low wages, according to union spokesmen, U.S. industries will also move to Mexico to take advantage of lower worker-safety and environmental-quality standards.  In sum, NAFTA will cost ``hundreds of thousands'' of Americans their jobs, according to the AFL-CIO.

The administration's counter-argument is that it is simply inevitable that some American industries will locate plants abroad, especially those involving lower-skilled labor, but that the net outcome of NAFTA will be to create far more employment opportunities in the United States than are lost.  According to Carla Hills, tariffs on Mexican goods entering the United States now average only 3 percent, and 45 percent of Mexican goods enter duty-free, so that if American industry were inclined to move massively to Mexico, it would already be doing so.  It does not, she says, because of advantages that outweigh wage differentials--such as higher education and productivity levels of U.S. workers, superior infrastructure in the U.S., and closer proximity to markets.  According to Hills, if U.S. industries were not able to move labor-intensive, low-skill assembly plants to Mexico, they would move them to Asia instead, and locate high-skill management and research facilities there as well.