THE WHITE HOUSE

Office of the Press Secretary

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.