15.1.4 Winners and Losers in a Globalizing World

While it is tempting to see globalization and the rise of MNCs as generally benefiting the people of developed countries, the reality is more complex. Improvements in transportation and MNCs’ use of labor resources in countries around the world have sometimes harmed workers in developed countries like the United States. Supporters of NAFTA, for example, argued that the United States would benefit from reduced trade barriers, lower prices for agricultural goods from Mexico, and newly available jobs for lower-wage workers. Opponents, however, recognized that the groups hardest hit by transformations in the labor market would be those least able to withstand the damage, mainly working-class manufacturing workers in the United States and Canada. Both sets of predictions proved accurate.

After NAFTA was implemented in 1994, trade and development across the three participating countries surged. Trade across the U.S.-Mexico border surpassed $480 billion by 2015, an inflation-adjusted increase of 465 percent over the pre-NAFTA total. A similar, if smaller, increase occurred in U.S.-Canadian trade during the same time. In Mexico, per capita GDP grew by more than 24 percent, topping $9,500. Even more impressive growth occurred in Canada and the United States.

But between 1993 and 2021, the United States lost nearly eighteen million manufacturing jobs when some companies found it more profitable to relocate to Mexico. Not all these job losses can be attributed to NAFTA, but many can, as manufacturing that otherwise would have taken place in the United States was moved to maquiladoras, factories in Mexico along the U.S. border that employ people for low wages. Maquiladoras often receive materials from U.S. manufacturers, transform them into finished products, and then ship them back to the United States for the manufacturers to use. After the passage of NAFTA, U.S. car manufacturers began to make use of parts produced inexpensively in Mexico that would have been much more expensive had they been produced in the United States. For example, in 2015, Brake Parts Inc. moved its operations from California to Nuevo Laredo, Mexico, and almost three hundred U.S. workers lost their jobs in the process. Workers in the automobile industry, once the backbone of the U.S. industrial sector, suffered as jobs and automotive plants were relocated to Mexico. Some economists, however, argue that the use of inexpensive parts produced in maquiladoras allowed the U.S. automobile industry to survive. Jobs in the clothing industry also declined 85 percent. There were simply fewer obvious advantages to keeping such jobs in the United States.

Economists say the loss of manufacturing jobs was less a result of NAFTA than of other structural economic changes in the United States, such as automation. And while many U.S. workers lost their jobs as a result of NAFTA, millions of others found work in industries that produced goods for sale in Mexico. Nevertheless, the impression that NAFTA and globalization have brought poverty and misery to the working class in the United States remains strong and has influenced the nation’s politics since the 1990s. Responding to these beliefs, in 2017, President Donald Trump instigated a renegotiation of NAFTA, creating the United States-Mexico-Canada Agreement (USMCA). The USMCA included strong property rights protections, compelled Canada to open its dairy market more broadly, and required that workers in the automotive sector in all three countries be paid competitive wages. The agreement replaced NAFTA and went into effect in 2020.

The complaints that arose during the NAFTA debates had been voiced for decades. Since the 1970s, many in the United States had argued that globalization allowed Japan, its enemy during World War II, to race ahead and outcompete domestic manufacturers. By the 1980s, Japan was exporting a huge volume of consumer electronics and automobiles into the U.S. market. Its economic resurgence created a massive trade deficit (the difference in value between what a country imports and what it exports) in the United States and rising concerns about its global competitiveness.

Political figures like Walter Mondale, the 1984 Democratic Party nominee for president, called the trade deficit a threat to the United States and spoke in dire terms about an emerging global trade war. Many others drew connections between Japan’s economic rise and growing unemployment in the United States. Auto workers were especially vocal, declaring that Japan was using unfair practices and artificially limiting the number of American cars that could be sold in Japan (Figure 15.8). While the reality was more complicated, politicians were primed to respond with tough talk and reforms. In 1981, President Reagan pressured Japan to limit the number of cars it exported to the United States. The United States also made efforts to limit the importation of foreign steel and semiconductors for the same reasons.

By the start of the 1990s, Japan’s economic engine was starting to cool, and so were American concerns about Japanese dominance. However, companies in the developed world faced challenges rooted in the high cost of living and resulting high wages they had to pay to their employees. Globalization offered a solution in the form of outsourcing and offshoring. Outsourcing occurs when a company hires an outside firm, sometimes abroad, to perform tasks it used to perform internally, like accounting, payroll, human resources, and data processing services. Offshoring occurs when a company continues to conduct its own operations but physically moves them overseas to access cheaper labor markets. Outsourcing and offshoring were hardly new in the 1990s. But with globalization, trade agreements like NAFTA, and the ability to ship goods around the world, they became a major cost-savings option for large companies. Trade agreements like NAFTA made it possible to build plants in Mexico and still sell the products they produced in the United States. Companies could also offshore some of their operations to countries in Asia where labor was much cheaper.

Those hired overseas experienced their own problems, however, because outsourcing often led to the rise of sweatshops, factories where poorly paid workers labor in dangerous environments. Images of women and children in horrific working conditions in Central America, India, and Southeast Asia circulated around the developed world in the 1990s as examples of the consequences of outsourcing. Major MNCs like Nike, Gap, Forever 21, Walmart, Victoria’s Secret, and others have been harshly criticized for using sweatshops to produce their shoes and clothing lines. In 2013, the plight of sweatshop workers gained widespread attention when a building called Rana Plaza, a large complex of garment factories in Bangladesh, collapsed, killing 1,134 and injuring another 2,500 of the low-wage workers who made clothing for luxury brands like Gucci, Versace, and Moncler. The disaster led to a massive protest in Bangladesh demanding better wages and reforms. In the aftermath, studies and inspections of similar factories revealed that almost none had adequate safety infrastructure in place.

The multinational technology company Apple Inc. has faced intense criticism in recent years for its use of foreign-owned sweatshops in Asia. Since the early 2000s, reports of sprawling factories with hundreds of thousands of workers assembling iPhones have made the news and led to a public-relations nightmare for the company. Investigative journalists have revealed that workers suffer a pattern of harsh and humiliating punishments, fines, physical assaults, and withheld wages. In some instances, conditions in the factories have pushed assembly-line workers to commit suicide rather than continue. Apple has insisted it takes all such accusations seriously and has tried to end relationships with such assembly plants, but those familiar with the problems have complained that little progress has been made.

Even when MNCs commit to providing a safe working environment and fair wages abroad, the practice of subcontracting often makes this impossible to guarantee. Foreign companies to whom multinationals send work often distribute it among a number of smaller companies that may also subcontract it, in turn. It is sometimes difficult for MNCs to know exactly where their goods are actually produced and thus to enforce rules about wages and working conditions.

Multinationals have harmed the countries in which they operate in other ways as well, including deforestation and the depletion of clean, drinkable water. They are also major producers of greenhouse gases and responsible for air pollution and the dumping of toxic waste. MNCs leave little in the way of profit in the countries they exploit, so funds are often lacking to repair or mitigate the damage they do.

The desire for a better life and opportunities in the developed world has led many in the developing world to migrate. Millions of immigrants from Mexico and other parts of Latin America have made their way into the United States over the last few decades. They typically find low-paid labor harvesting crops, cleaning homes, and serving as caretakers for children. In these jobs, they serve an important role in the U.S. economy, often doing work domestic workers are unwilling to do. Many entered the country illegally and live and work in the shadows to avoid deportation. This makes them vulnerable to abuse, and they are sometimes preyed on by human traffickers and unscrupulous employers. The United States is not the only country where this dynamic occurs. Saudi Arabia, for example, depends heavily on foreign workers to fill jobs Saudi Arabian citizens are reluctant to take, such as caretaker or domestic servant. Some workers have reported physical and emotional abuse to international human rights watchdog organizations like Human Rights Watch and Amnesty International. Being immigrants, they often have little access to relief from the country’s justice system.