In the early 1990s, the electronics and aerospace manufacturer Honeywell — then headquartered in Minneapolis, with thousands of unionized employees in the state — relocated one of its facilities to the maquiladoras in Tijuana, Mexico. Concerns over these job losses and the debate about expanding “free trade” between the U.S. and Mexico through the North American Free Trade Agreement prompted then-Sen. Paul Wellstone (D-Minn.) and his staff to lead a fact-finding tour to Tijuana to find out what had happened to Minnesota jobs.
Wellstone was stunned by the low wages, dilapidated housing, pollution and high prices. In an interview at that time, he declared, “NAFTA is very, very important and it’s going to crucially define the quality or lack of quality of the lives of Minnesotans. Wage levels [at Honeywell in Mexico] are so low, about $1 an hour.”
Wellstone also toured a grocery store to demonstrate that the price of eggs in Tijuana was the same as in Minneapolis. He then announced his opposition to NAFTA, calling for trade agreements to have environmental, health and safety, labor and human rights standards.
Honeywell prospered from the move to Mexico. But if you look at any corporate manufacturer’s balance sheet, you will find a revolving credit line that provides the capital for large-scale investments such as new factory capacity and technology. At Honeywell, for instance, according to its SEC filings in 2003, those lenders included 20 global banks, led by Citibank, which provided Honeywell with a $1 billion line of credit. The five largest lenders (including JP Morgan, Bank of America, Barclay’s and Deutsche Bank) collectively provided over $478 million.
How did the banks that provided Honeywell with its “revolver” profit? Later, in the SEC filings, Honeywell reported that its interest payments and other financial charges had ranged from $265 million to $481 million annually from 1998 to 2002.
This is what “financialization of the American economy” has meant to workers and why the living standards, labor rights and environmental protections that Wellstone identified as critical to trade agreements over 30 years ago have all eroded in America. The key winner has been the financial industry that is hidden behind the global manufacturing companies, regardless of where they are headquartered.
This system cannot be reformed by the haphazard generalized tariffs proposed by the Trump administration. Instead, tariffs must be directly tied to protecting the living standards, labor rights and environmental protections that were the foundation of American prosperity and public health in the decades after World War II. Tariffs must enforce American laws and standards when other countries undercut them in the course of producing imports.
For instance, Mexican miners are paid wages less than 10 percent of the average annual salary paid in Minnesota’s mines. The raw materials those poorly-paid miners excavate are then converted into steel and auto parts, which are assembled in GM’s Silao, Mexico truck plant, which pays its workers only $25 a day. The trucks are then imported to America.
The first step to restore American manufacturing is to renegotiate the U.S.-Mexico-Canada Agreement to require tariffs specifically on those goods passing between our three countries that do not reflect the highest wage standards in that industry in the three countries. GM’s incentive to pay its Mexican autoworkers less than those in the U.S. and Canada should be ended. Similarly, ArcelorMittal should not be allowed to pay wages at Mexican iron ore mines that are a fraction of what it pays Canadian miners — while turning that iron ore into steel products that are shipped throughout North America.
A unified North American trading block could send a powerful message to the rest of the world that our three nations intend to rein in the financialization of the global economy and demonstrate how to end incentives that move jobs to where wages are lowest and environmental protections poorest. Tariffs could be used to address wage disparities in the three countries. They should also be used to support uniform labor rights.
Today, Canada’s labor laws are the fairest and most effective of the three nations. In 2020, unionization rates were 31.3 percent in Canada, 12.1 percent in the U.S. and 10.4 percent in Mexico. Strengthening the rights and participation of those most immediately affected by the global shifts in production will be critical to stable decision-making.
Environmental pollution regulations and global human rights standards should also be enforced with tariffs in North America. Finally, the USMCA treaty’s enforcement procedures should be strengthened, streamlined and applied to the supply chains of any company operating in the U.S., Canada or Mexico. This would prevent the import of products manufactured outside the USMCA in violation of the standards we have set for ourselves.
In 1993, when NAFTA was passed by the Senate, 28 Democratic senators and 10 Republicans voted no. At a press conference, five senators (from Michigan, California, South Carolina, Ohio and Minnesota) spoke about the jobs that would be lost in multiple industries in their states. Sen. Barbara Boxer (D-Calif.) told how Green Giant had moved 800 food processing jobs from Watsonville, Calif. to Mexico. Wellstone said, “The litmus test for me was whether or not there would be guarantees that the Mexican government would have to live up to labor, health and safety and environmental standards. They failed that test.”
Today, Congress should focus on reforming USMCA as a first step in correcting the global trading system. The U.S., Canada and Mexico, instead of being divided, can be united in giving the world the direction it needs to improve the lives of all people.
David Foster is a retired district director at United Steelworkers and a visiting scholar at MIT.
