CASE STUDY ASSIGNMENT

NAFTA and the U.S. Textile Industry

Name: Faryah Saeed

Program: M.Phil. (MS)
Course: International Business &
Economics Perspectives
Instructor: Dr. Mubashir Ali Khan

MAY 29, 2021

BAHRIA UNIVERSITY
KARACHI CAMPUS
Table of Contents
Question 01: .................................................................................................................................................. 2
Question 02: .................................................................................................................................................. 2
Question 03: .................................................................................................................................................. 3

1
Question 01:
Why did many textile jobs apparently migrate out of the United States in the years after the
establishment of NAFTA?
Answer
After the introduction of NAFTA, many textile jobs relocated out of the United States since
manufacturers could now produce their clothing more cheaply outside of the nation. With trade
with Mexico open, U.S. corporations reduced labour and output at U.S. facilities in order to
relocate to Mexico, where labour and production costs were much lower.
Then, from 1994 and 2004, despite strong and rising demand from American consumers,
clothing and textile output in the United States plummeted by 40% and 20%, respectively. Cuts
in output resulted in considerable job losses, with textile mill employment declining from
478,000 to 239,000 and clothing employment reducing from 858,000 to only 296,000.
Jobs also flowed out of the United States since the average wage in the United States was $10 to
$12 an hour, compared to $10 to $12 a day in Mexico. Fruit of the Loom Inc., for example,
would gain more and boost revenue if its employees were paid less to do the task. NAFTA is
also regarded with assisting in the growth of political stability in Mexico. As a result, another
factor for job migration out of the United States might be this.

Question 02:
Who gained from the process of readjustment in the textile industry after NAFTA? Who lost?
Answer
Companies in the United States benefited from lower expenses and higher sales. Mexico
benefited from the influx of workers and production, which boosted their economy.
This readjustment, in which jobs in the United States relocated to Mexico, had a significant
impact on employees in textile mills in the United States. However, consumers in the United
States benefited greatly. Textile mill employment fell from 478,000 to 239,000, while clothing
employment fell from 858,000 to 296,000, according to the report. This demonstrates that a large
number of people were left jobless and looking for new opportunities. On the other hand, for
folks like me, this modification made it fairer.
Clothing prices have decreased as a result of textiles being moved to Mexico. It is now easy for
customers to get apparel at a lower cost rather than paying a high price for it. This indicates that
the market will expand as consumers are able and ready to spend more money at a lower cost. In
this instance, both Mexico and the United States will profit. As low-cost manufacturing shifts
south, Mexico would create more employment. In addition, the United States will expand a
thriving market and cut consumer costs for items manufactured in Mexico. Especially when there
are discounts available.

2
Question 03:
With hindsight, do you think it is better to protect vulnerable industries such as textiles, or to let
them adjust to the new situations that follow entering into free trade agreements? What would
the benefits of protection be? What would the costs be?
Answer
On this subject, I have a two-sided viewpoint. In some ways, I believe we should defend sectors
like textiles, since employment would be gone and incomes would plummet in the United States
and Canada. Mexican laborers would travel north, and pollution would rise as a result of
Mexico's inadequate environmental regulations. Furthermore, Mexico would lose its sovereignty,
which is not a significant consideration. But on the other hand, we shouldn’t protect because this
would prosper in the market & benefit the consumers.
However, we should not protect since this would flourish in the market and benefit consumers.
The world we live in would be a better place if trade were free, allowing corporations to benefit
from economies of scale, globalisation of production, and globalisation. The advantages of
protection would be that U.S. company employees would be able to maintain their employment.
The drawbacks would be that the corporations would make less money and that they would be
out-competed by other corporations seeking globalisation of production.