Is Globalization Good or Bad? The Effects of NAFTA and Global Supply Chains

On December 8th, 1993, Bill Clinton signed the North American Free Trade Agreement (NAFTA) into law. 

In his remarks at the signing, Clinton proclaimed, “NAFTA means jobs. American jobs and good-paying American jobs. If I didn’t believe that, I wouldn’t support this agreement.” 

Roughly a month earlier, in a debate with former presidential candidate Ross Perot on Larry King Live, then Vice President Al Gore claimed the same. 

“We will create more jobs with NAFTA,” Gore assured viewers. 

Instead of increasing jobs and wages in the U.S., NAFTA opened the floodgates to a global race to the bottom where companies (many American) relocated their manufacturing plants to Mexico, where labor was cheapest. They then shipped their products back to the U.S. to be sold to U.S. consumers. 

Two decades after NAFTA had been in effect (1993 – 2013) the Economic Policy Institute reported that over 850,000 American jobs had been moved abroad. 

Why? Because American companies gladly moved jobs to Mexico where the daily wage of a Mexican worker was roughly equivalent to the minimum wage per hour in the U.S.

Especially in the business world, we take for granted that the global spread of capitalism (fueled by free trade agreements like NAFTA) has increased the quality of life for all by expanding participation in the market, often through jobs. 

But there’s important nuance here that’s been overlooked. 

Not all jobs are good jobs and trade is not good for trading’s sake.

Eric Henry, President of TS Designs, was forced to reinvent his business anew after bearing the brunt of NAFTA’s impact. 

His experience shared here offers a vision for what a post-race-to-the-bottom world might look like. 

We’ll also discuss the wider implications and context of NAFTA, globalization, and how we can envision a different global economy.

➡️ I recorded a full interview with Eric Henry on his experience with NAFTA, building transparent and localized supply chains, and how his company, TS Designs, has created the best damn t-shirt ever made. Listen/Watch that here.

Introduction to NAFTA

Eric Henry started his screen printing business, TS Designs, back in 1977 in Burlington, North Carolina. Business was good and growing. But with the enactment of NAFTA in 1994, culture quickly changed. 

NAFTA was a trade agreement intended to remove all barriers to trade within the North American continent between Canada, the U.S., and Mexico. 

NAFTA was met with plenty of opposition from within both the U.S. and Canada, but ultimately, the campaign for NAFTA’s adoption prevailed. NAFTA has since been replaced by the United States-Mexico-Canada-Agreement (USMCA) under the Trump Administration in 2020. 

NAFTA was an inflection point for Eric, albeit one forced upon him against his will.

💬 Eric Henry
I think we need to go back to January 1, 1994, because that’s driven me to where we are today, both personally and in business.

Prior to that, I had built with my business partner, who’s since retired, what they call a large volume contract screen-printer. 

So our clients were Tommy, Nike, Gap, and Polo. Over a hundred people worked here at TS Designs. We ran two to three shifts.

We were growing, the banks loved us, we were profitable, everything was good. 

NAFTA rolls in January 1st, 1994, and within two years all those brands left, and our workforce dropped to about 12.

I realized then there’s something more to a business than a bottom line.

Why was NAFTA so Impactful?

There were trade agreements prior to and since NAFTA (NAFTA has already been replaced by Trump’s USMCA). 

There seemed to be something different about NAFTA from trade agreements that came before it (at least for the U.S., the largest economic powerhouse at the time). 

What changed?

💬  Eric Henry

There’s been a lot of trade agreements prior to that, but this was the first major trade agreement between Canada, the United States, and Mexico.

Prior to that, there were all kinds of tariffs and duties to do things in these other countries and they just eliminated them.¹

The thinking at the time was the marketplace would dictate winners and losers, and I have no problem with the marketplace. 

Canada is more of a developed economy and Mexico is developing; there are two different economies. So when you look at Mexico, they had much, much cheaper labor rates.²

And we knew that, but they pretty much did away with all environmental regulations between the two. The rules that they had to play by in Mexico were different than rules they played by in this country here. 

So, we knew it wasn’t gonna be a level playing field when it came to labor. But what they did is say, “We’ll let the marketplace dictate the winners and losers.” 

And what happened almost overnight, literally within months. The first thing that went was the cut and sew of the t-shirts and then they’d send the t-shirts to the US. So I go down to Mexico city to see a plant, and I can see the writing on the wall.

If they’re making the shirts in Mexico, which had a much, much cheaper labor rate than the US, you knew all the other attributes of the printing and the packaging stuff would follow it.

We were right at ground zero of the textile industry: North Carolina. And so, we saw the devastation quickly of both businesses and jobs.

I mean, Ross Perot said that giant sucking sound literally happened.³

Why Didn’t NAFTA Work? 

Not only did NAFTA displace hundreds of thousands of jobs in the two decades after its enactment, but reports found the trade deficit for the U.S. with Canada and Mexico increased from roughly $17 billion to $177 billion over that same time frame. 

What was so wrong about NAFTA? American companies had an unfettered opportunity to boost profits by acquiring cheaper labor, while still having the same access to the U.S. consumer market. During that debate on Larry King Live mentioned earlier, Gore’s opponent, former presidential candidate Ross Perot outlined what he called would be the “NAFTA game.”

“Buy U.S. manufacturing companies cheap, right after NAFTA passes that are labor intensive, that make good products, that have marginal profits. Close the factories in the U.S., move the factories to Mexico, take advantage of the cheap labor, run your profits through the roof, sell the company’s stock at a profit, and go get another one.” 

NAFTA’s largest criticisms were rooted in the fact that the playing field between the economies of Canada, the U.S., and Mexico weren’t level. The Mexican labor market was far cheaper and far less regulated.

American companies could ship parts to Mexico, have goods assembled there, and ship final products back for a fraction of the cost. Profits soared as did share prices. 

So, when NAFTA was signed into law, U.S. companies responded just as Perot had predicted.

What’s more, NAFTA didn’t benefit Mexicans either. Millions of small-holder Mexican farmers were pushed out of the market by U.S. industrial agri-businesses, and with the resulting enmeshment of U.S. business, Mexico’s economic health was tied to successes and failures of the U.S. economy. Mexico was hit particularly hard by the various economic crises in the U.S. since the 90s. 

Supply chains rapidly began to expand across the globe. As more and more manufacturing jobs left the U.S., so did supply chain resiliency and transparency.

 💬 Eric Henry

COVID was another wake up call just like NAFTA was for the weakness of a global supply chain that’s built around just price.And not to say we didn’t have our challenges with our supply chain, but at least I don’t have to worry about that ship that’s stuck out on the coast of LA coming in with stuff that was ordered six months ago.

Literally, I can get in my car and see everybody within a couple hours for the product we make.

There’s something wrong when you go outside of your market for a product or service your market delivers. 

We can make apparel here, but we decided, as a country, we got opened up and exposed to that global economy and realized things were a lot cheaper.

And, at that time we thought that it would benefit everybody. Well, we see where that’s gotten us.

I think, in the apparel industry now we have flipped from pre-NAFTA 90 some percent made in the U.S. to now we’re about 97-98% made overseas. ⁴

And that’s all driven by one thing: chasing cheap, usually unsustainable labor.

And even the experts thought it was going to take time to level this thing out. 

I mean, it was devastating.

If you weren’t directly associated with the apparel industry or knew somebody in it, you just saw that and said, “Hey, I get cheaper clothes. This is great! I can buy more stuff!” 

But on the other end, if you’re the company that’s trying to supply that stuff, you pretty much lost that business overnight. And that’s what happened to us and a lot of businesses around here.

Litmus Test for an Ethical & Resilient Supply Chain

In my assessment, Eric sets a potent standard for what the ethics are of building a supply chain in a globalized economy. I appreciate that he doesn’t mention explicitly here that everything must be “Made in the USA,” for example. 

But, he says that there’s fault in” going outside of your market for something that your market delivers.” 

If the only reason a business goes “outside their market” is price, it’s worth questioning whether that choice is truly sustainable, ethical, and resilient (as Eric will touch on later). 

What’s the litmus for building an ethical, sustainable, and resilient supply chain? How quickly can you see everyone who touches your product in one way or another? 

For Eric, he can see everyone in an afternoon.

The Problem with a Global Market Based on Price

By definition, if price and profits are driving the expansion of the global marketplace, then considerations for workers and the environment take a back seat. 

And we’ve seen this. Over and over and over again. 

The problem isn’t necessarily going global with our economy. The problem is with prioritizing the cheapest costs and highest profits over other externalities that impact the community they are going to and coming from.

  💬 Eric Henry

 Again, I have no problem with global competition.

But I think we have to look at a global competition not only from a price standpoint but also the impact on the people and impact on the planet. It’s no different what’s happening today, very rarely do we hold onto any type of people/planet regulation.

That’s why we got the Uyghur situation in China. That’s why we got a question about organic cotton out of India. I don’t have the answer to how to fix that, but a lot of times we don’t realize the other side or the downside of globalization, which is: we are typically not made aware of things until it’s too late. 

The best example of that? Six or eight years ago is when they had the largest apparel disaster in history where over a thousand people died in this building in Bangladesh.

Everybody said, “Oh my God, how does that happen?”

And I said, “Look at what we’re paying.” I think the average labor rate was 26 cents an hour. ⁵

And no company was ever held personally responsible because they would work through their agents and stuff like that, so there wasn’t [technically] a brand company over there.

But I say, the blood’s still on their hands because you know you’re in Bangladesh for one thing, one thing to take advantage of and that’s cheap unsustainable labor, which gets you into a developing country like that. And a building that was eight stories that should never been built collapsed and a thousand people died.

That’s the problem with globalization in an opaque marketplace is you lose that visibility. 

And we keep asking how this happened. It happened because this is the world we live in.

What’s the Responsibility of Business in a Global Economy?

When visibility is lost, issues run rampant. Businesses can choose to accept complete accountability or none. 

Where there’s lacking transparency, do the businesses choose to dig deeper, or do they see that as an opportunity to defer any responsibility for wrongdoing? 

As Matt Dwyer, VP of Product & Impact at Patagonia, commented in The New York Times, as secrecy increased around what exactly was taking place in Xinjiang—where Uyghur labor camps are—he dug deeper. When it became clear it was impossible for him to confirm what sort of labor standards were being adhered to, Patagonia pulled out and sought out other places to do business. 

It’s worth critiquing Patagonia on their presence in Xinjiang in the first place. Why do business in a place where there’s even the slight chance of hidden slave labor? Where you have to spend a year attempting to figure out…that you can’t figure it out. 

Does this not bring the rest of their global supply chain under scrutiny?

While I appreciate Patagonia’s decision to ultimately pull out of the region (and overall I remain a supporter of the brand), I can’t help but come back to Eric Henry’s refrain of having a “dirt to shirt” completely transparent supply chain. 

Granted, we’re talking about two completely different scales of business here, Patagonia has near $1 billion in annual revenues. 

But that can’t excuse anything, in my opinion. It only more so points out the problem: 

Is Patagonia, or any comparable company, too big to operate ethically and sustainably? Should they operate at a scale where they can be certain operations are in alignment with their values? If the answer is no, then are they willing to risk something like slave labor in their supply chain for the sake of scaling?

Patagonia is one of the shining examples of a business that’s taken standards on environmental stewardship and likewise, social responsibility. 

There are far worse offenders! 

But again, this drives the point further for me—if the “best” among us can’t be certain about the conditions of their supply chain, should business be done in a different way?

How to Make in the USA Post-NAFTA

 💬 Eric Henry

We decided not to participate.

We decided to stay here, and we had to change our directions because obviously we were not gonna be a low-cost producer. So first of all, we changed the mission of our company to be successful while simultaneously looking after people, planet, and profit, triple bottom line, sustainable business model.

And when you talked about that in the mid-nineties, people just had a glazed-over look,
“What’s that,” you know, “business is about making money.” 

And again, profits are important, that’s what keeps the lights on and that’s what keeps us moving forward. But we learned early on there’s more to it than that.

When you fast forward today, I think a lot of the issues that we’re faced with both impacting society and impacting the planet are driven by companies that are just focused on maximizing that bottom line. 

And we’ve gotta start taking a more responsible holistic view of a business’s responsibility to society as a whole.

So, we focused on creating the highest quality, most sustainable printed apparel. That’s the journey we’ve been on ever since. And that’s the journey we’re still on today.

Can a Global Marketplace Be Fair?

Complete transparency is key. We are either on board with transparency, or we are confirming that there is a degree of exploitation that we have decided we are okay with. 

Transparency helps brands self-regulate. That should be the first requirement to do business, at least in the U.S. Much follows from transparency. Competitive edge is not worth the level of exploitation and extraction that’s happening, whatsoever. It can’t be part of the game. If a company is required to risk (or knowingly allow) exploitation to be “competitive,” then maybe they are competing at the wrong things. And finally, there’s accountability on consumers to redefine what’s important to them when making a purchase: transparency.

 💬 Eric Henry

What I advocate is the first thing we should require is full transparency. The challenge we have with the apparel industry, even if you say made in the USA, what does that mean?

We need to have transparency of the whole supply chain of where the materials come from and the manufacturing, because to me, by transparency you have self-regulation.

I’ve got a Patagonia sweater on, gonna probably say made in Vietnam. Well, that’s good. But what I want know is where in Vietnam this was made. 

I want a location. I want a contact. I want a phone number. 

The chance of me going to Vietnam are probably about zero, but if the chance I do that, I wanna have that.

And, we’ve done that because with our supply chain which is at Whereyourclothing.com. We’ve been doing this for over 10 years, and now we have a QR code that does this. 

But when we say our supply chain is transparent, I will introduce you to everybody in the supply chain; the farmer, the ginner, the spinner, the knitter, the finisher, the cut and sew. 

I’ll give you a picture, phone number, physical address, and email—the most transparent supply chain that I know of. And fortunately, we do that in the Carolinas, but there’s no reason that the Nikes, Tommys, the Gaps, the Polos, or Adidas don’t give you that information, too.

That should be the first requirement.

If you’re gonna sell product in this country, you have to disclose the supply chain of who made that product. I think that’s the first thing that we do to start leveling the playing field: this full disclosure, full transparency. 

And I will call bullshit on bullshit when they say, “Well, god, that’s our competitive edge!” There is a lot that happens from in the back of this room, here, you can see a painting of the cotton field that we work with a farmer 60 miles away.

There’s a lot that happens from that cotton field to this t-shirt that we wear that’s on this table here. 

So just having access to that supply chain is not gonna put you in business without throwing a lot of money at it.

Go from Global to Local

Globalization isn’t going away. We aren’t exactly going to go back to pre-NAFTA days. But, global disruptions have happened, Uhh…hi COVID, and they will happen again. It’s not just about sustainability as Eric says, it’s about resilience. 

Sustainability falls underneath that umbrella. There are actions businesses can proactively take if they are to align themselves with what’s most ethical and responsible. There are actions governments must take so that doing what’s ethical and responsible isn’t left to corporate volunteerism.

Moving forward, however, it’s about education in Eric’s opinion, an educated consumer & citizen. It’s about committing to transparency. Again, things won’t return back to how they were, but they can inch back there meaningfully with time.

 💬 Eric Henry

We’re not gonna put that genie back in the bottle when it comes to globalization, but we have an opportunity.

We can do some things in a more local, connected, and ultimately more resilient way. I like resilience over sustainability because we’ll have some other global disruption down the road. 

There are certain things that we can do a better job with.

And one thing we do where we are in the Carolinas is “dirt to shirt.” We have it all right here. The only thing keeping us from doing that is the marketplace is saying, “Get it cheaper somewhere else.” 

But when that “somewhere else” you can’t get it or that “somewhere else” causes a planet problem, i.e. they’re just dumping the chemicals out the back and killing people, or on the people side, they’re basically indentured servants making apparel…

This is a more resilient model and I think COVID definitely bore that out.

I’m not interested in, per se changing regulations so it can only be made in USA whatever at the end of the day in the country and the economy we live in it is your choice. 

All I want to do is when you have that choice, you’ve got full information, full disclosure. 

I’m not stopping you from buying those cheap t-shirts at the dollar store, that’s totally up to you. And there’s reasons why to do that. 

I’m not going to do that, but I just want the consumer to have full information of what they’re buying, and then ultimately it’s their decision.

Transparency and Globalization

While Eric will say himself that he/his business isn’t perfect, he and TS Designs become something of a standard bearer for what sort of businesses we should create and what we should expect of the business community. 

Eric’s experience and the trajectory of economic globalization call firmly into question the responsibilities of businesses with international supply chains to ensure their products are made ethically and sustainably. 

No product, nor any sales figures or profit margins, are worth any degree of exploitation. 

Eric also adds nuance to the discussion around why it’s important to buy local, and build local. 

If you can’t do business in a completely transparent fashion—with complete certainty of how your product is made, who makes that product, and in what sort of conditions…then maybe you shouldn’t be in business. 

It’s all made much easier to be in the know if it’s your neighbor who supplies you the beef for your brew house’s burger. 

We must reimagine the purpose of business and our global economy to be about much more than money. 

If not, then the only incentive is to make things cheaper, cheaper, and cheaper. But as we’ve seen, we (or someone else) takes on that cost elsewhere. 

Workers are exploited as are natural resources, air, and waterways. 

Global disruptions reveal to us just how fragile things are. Globalization has led to companies building with breadth in mind. 

Perhaps a new more resilient, sustainable, and transparent wave of economic development focuses on scaling depth instead.

Eric Henry

Eric Henry is a social entrepreneur, activist, and speaker. He is the President of sustainable t-shirt company TS Designs, the first ever B Corp in North Carolina. He has also founded and collaborated on many community engagement initiatives including Burlington Biodiesel Co-op and Burlington Beer Works Co-op, and spoken on the topics of local supply chains, the economics of US hemp and cotton, and running a business post-90s NAFTA.

Footnotes

¹ NAFTA eliminated tariffs for most North American goods over the span of 10-15 years, removed barriers for foreign investment into Mexico. There were various environmental and labor regulations added to the agreement, but the enforceability of those was questionable (Source).

² Negotiations on NAFTA forced the Mexican government to raise their minimum wages. While Mexico had various minimum wages depending on geographic areas, The New York Times reported at the time the wages in rural areas were to be raised to $4.15 per day and in areas like Mexico City, the wages were raised to $5 per day. 

³ Eric was referring here to what third-party candidate in the 1992 presidential election, Ross Perot, said during a debate with the would-be President Bill Clinton and the incumbent President at the time, George HW Bush.

⁴ Eric is just about spot on with this number, as less than 2% of apparel sold in the USA is made in the USA. See more here.

⁵ From what I could gather, the minimum monthly wage for Bangladeshi factory workers was roughly $35 USD per month at the time of the Rana Plaza Disaster.