Nafta Notes

Thursday, September 23, 1993

U.S. Capital Goods Exports -- The Real Story

	*  One of the strongest arguments for NAFTA is that it will
continue the growth of U.S. exports to the dynamic Mexican
market.  In the past five years, the U.S. has gone from a $5.7
billion trade deficit with Mexico to a $5.6 billion surplus. 
NAFTA critics, however, point out that much of that surplus is
made up of capital goods -- and claim that this is nothing more
than taking apart American factories and sending them south to
Mexico.  But this claim misses the real story behind U.S.
capital goods exports.

	 * In percentage terms, capital goods have been the slowest
growing major export category to Mexico in the last five years. 
While capital goods are still the largest component of U.S.
exports to Mexico, they have decreased from 40 percent of total
exports to Mexico in 1987 to 33 percent in 1992.  In comparison,
capital goods make up 40 percent of our exports to developing
countries, and 39 percent of our exports to the world.

	* The flawed logic that assumes that capital goods are merely a
one-time export which will produce a flood of cheap imported
goods flowing back into the U.S. misses the point.  Capital
plant equipment exported to factories in Mexico should not be
seen in negative terms for the American economy.  Production of
cutting-edge technology such as robotics, generators, and
production machinery supports the highest-paying U.S.
manufacturing jobs; just as importantly, a healthy, expanding
Mexican economy will continue to need such high-tech U.S.
products.  Even the U.S., the world's most productive economy,
must replace a part of its capital equipment each year.

	Additionally, capital goods are some of our most competitive
exports and cover many things other than capital plant
equipment: Boeing jets, IBM computers, AT&T telephone systems,
John Deere tractors.  The manufacture of all of these U.S.
products support high-paying U.S. jobs, and cannot be construed
as a drag on the U.S. economy.

	*  Finally, and perhaps most importantly, without NAFTA Mexico
has no incentive not to fill its growing capital goods needs
from Japanese and European -- rather than U.S. -- exports.

NAFTA Fact

	*  83 percent of the growth in U.S. exports to Mexico in the
last five years was for Mexican consumption -- not re-export. 
Additionally, in those five years exports to maquiladoras in
relation to total U.S. exports to Mexico have fallen.  In 1992,
U.S. exports to maquiladoras comprised 22 percent of U.S.
exports to Mexico, compared to 32 percent in 1987.