NAFTA and U.S. Business Many Analysts Warn

NAFTA and U.S. Business

Many analysts warn that those who were impressed by the growth of the U.S. economy and its manufacturing sector during the 1990's when both boomed even as trade deficits rose and believe that the dollar's role as anchor of the world economy will allow deficits to climb even higher should consider America's trade performance, especially with the rising import penetration rates, resulting in the decline of domestic market shares (Outside 2002).

Trade deficits are the result of living beyond national means, and Americans have of late become so ambivalent about their own high indebtedness that "it's no surprise to see ambivalence about the nation's red ink" (Outside 2002). However, market share is less controversial, for unlike borrowing heavily, which can and often does lead to economic success if the borrowed money is used wisely, losing market share has no present or potential upside (Outside 2002). "Companies losing market share to competitors are never regarded favorably. Their stock prices never go up for long. Their futures are never rosy. In fact, they may not be long for this world. The same goes for a nation's industries" (Outside 2002).

Not only do U.S. government statistics on market share do not get as much attention as trade deficit numbers, they are not even kept as such (Outside 2002). Market share figures must be derived from Commerce Department data on industry shipments and on imports, however, the former are not "nearly as up-to-date as the latter, which themselves are always three months behind" (Outside 2002).

Although the market share figures through 200 can be calculated, the picture is devastating (Outside 2002). From 1997 to 2000, not one single American industries gained domestic market share from foreign competitors, and most industries "lost big time," for example the U.S. auto industry, "which lobbied hard for 1990's trade agreements like NAFTA, the creation of the World Trade Organization, and normal trade with China" (Outside 2002). Just during the period from 1997 to 2000, the auto industry's domestic market share sank from 55% to just under 47% (Outside 2002). And the U.S. steel industry's numbers went from 80.3% to 77.4% (Outside 2002). "Of course, steel and autos are widely seen, especially by globalization extremists, as losers, smokestack industries from which advanced countries like the United States should be delighted to exit in favor of high-tech manufacturing and services" (Outside 2002).

Although the United States is still a powerhouse in civilian aircraft, during the 1997-2000 period, foreign market share in aircraft nearly doubled to just under 16% (Outside 2002). In the category of broad computer and electronics products, "import market share rose from an already high 39.4% in 1997 to 48.9% in 2000...and this was before the big tech meltdown" (Outside 2002). Yet, some successes were registered, mainly in computer storage, and semiconductors and printed circuit boards more or less held their own, but "printed circuit assemblies, electro-medical devices, industrial process controls, and communications equipment were big losers" (Outside 2002). And technology industries in other sectors fared no better: import penetration rates rose from 19% to 24.9% in relays and industrial controls, from 12.5% to 16.3% in switchgear and boards, from 13.2% to 19.4% in pharmaceuticals and medicines, and from 36.9% to 53% in optical instruments and lenses" (Outside 2002). Foreign market share in broad electrical equipment jumped from 18.7% to 25.7% during the 1997-2000 period, and comparable losses were registered in machinery, chemicals, and paper sectors (Outside 2002).

The U.S. market is not the sole theater in which they compete, since American industries also export, however, it is the most important (Outside 2002). The U.S. is not only the world's biggest single national market, it is the "toughest and the most sophisticated" and moreover, "the U.S. market should be the market that U.S. industries know best...if they can't win here, it's hard to see them prevailing anywhere over time" (Outside 2002).

In December 2002, the business sectors in Mexico, the U.S. And Canada were pushing for the creation of a North American common market, NAFTA Plus (North 2002). In 2001, the three nations made 18.8% global exports, with a third of their foreign trade within NAFTA and the same year, "Canada and Mexico received more than a quarter of Foreign Direct Investment from the United States, whose companies invested U.S.$114 billion" (North 2002).

Although, NAFTA has allowed trade between the U.S. And Canada to continue to flourish, it has been a catalyst for better relations with Mexico (Mexico 2003). Under NAFTA, overall trade between the U.S. And Mexico has grown dramatically and Mexico is now the United State's second largest trading partner behind Canada and presents great opportunities for U.S. companies who are looking to expand (Mexico 2003). And moreover, there is a general interest in U.S. products and services in Mexico, especially among the younger population (Mexico 2003). "The government's efforts to restructure the economy have created an environment more conductive to foreign direct investment, and investors are more confident" (Mexico 2003).

U.S. executives appear to be taking a more pragmatic, sober, and in some cases contradictory view of the ability of U.S. companies to compete abroad (New 2003). According to a survey by Lieberman Research Worldwide, senior managers at Fortune 1000-type companies "find themselves in an environment that is more global, more competitive, less protectionist, less ethical and ultimately more value driven than even five years ago" (New 2003). Eighty-seven percent of the executives say that high taxes bring competitive disadvantage to American companies, and seventy-three percent find "over-bearing government regulations, particularly 'strict environmental regulations,' weaken their position in competing globally" (New 2003). And sixty-one percent stated that "tough rules governing trade and investment as a disadvantage facing American businesses" (New 2003).