A 14-year-old trade agreement has re-emerged as a hot issue during the lead-up to this year’s U.S. presidential election. Will the winning candidate result in big changes to NAFTA?

Arguments over the North American Free Trade Act (NAFTA), which echoed during the recent presidential primary in Ohio, and has become the patsy for an inevitable process of globalization, could persist well into the fall.

“Growing public ire about our current trade and globalization policies — damage to Americans — economic prospects has played an enormously important role in this election, with most candidates committing to reform NAFTA,” Lori Wallach, director of nonprofit organization Public Citizen‘s Global Trade Watch division, recently said in a statement.

When it became law in 1994, NAFTA basically broke down trade barriers among the three massive, contiguous nations that dominate the northern portion of the Western Hemisphere. It eliminated most tariffs — or import taxes — on goods moving from one of the three countries to another. Most economists believe this has been good, overall, for the U.S. economy. Others, however, point to claims of huge job losses in industries — particularly in Rust Belt states — as a result of the trade agreement.

Which brings us to NAFTA’s resurgence in the political arena.

On one hand, Sen. John McCain has consistently said through the preceding 12 months that not only is trade a cornerstone of our economic and national security policy, but also that he would aggressively pursue a wide range of trade agreements that would liberalize the trading regime and open access in both U.S. and foreign markets. McCain voted for NAFTA in 1994, and lately the Republican frontrunner has been criticizing his Democratic rivals who have been criticizing NAFTA.

Yet of all the twists and turns in the Democratic primary campaign, one of the thorniest is the return of NAFTA.

The recent competitive scramble for votes in the Ohio primary has created the impression that, if elected, either Sen. Hillary Clinton (who won that state) or Sen. Barack Obama would scuttle NAFTA and abandon longstanding U.S. efforts to expand international trade. Political skirmishes over NAFTA have led Obama and Clinton to vow to change or abandon the deal.

Beyond their aggressive shots at one another over accusations of NAFTA talk being primarily political (protectionist pandering versus secret approval as occasion demands), the bottom line is that both candidates blame the free-trade agreement in its current form for job losses in the U.S.

Of course, the arguments for and against the trade agreement are usually overly simplistic. The actual truth is much more complex, with no easy answers, which is why NAFTA has amassed a mixed record since it came into force 14 years ago. (Even McCain has qualified his remarks. After saying NAFTA “has created millions of jobs” and “has helped the economies of all three of these nations,” McCain added: “There have been winners and losers and that’s the problem.” (Source: Newsday)

Nationally, China has long displaced Mexico and Canada as the millstone on trade issues. Although U.S. imports from Mexico have risen sharply since the early ’90s — from $48 billion to $216 billion in 2006 — U.S. exports to Mexico have tripled to $156 billion during the same period. Last year, according to the Department of Commerce, trade with Mexico (America’s second-largest trading partner) accounted for less than 10 percent of the trade deficit.

Only two months in all of 2007 showed declines in the value of monthly U.S. surface transportation trade with NAFTA partners, Mexico and Canada, according to figures from the Bureau of Transportation Statistics. Total North American surface transportation imports rose 4.2 percent in 2007 from 2006, and exports rose 5.8 percent during the same time period.

In January, the U.S. Department of Agriculture (USDA) wrote that “from 1992 to 2007, the value of U.S. agricultural exports worldwide climbed 65 percent. Over that same period, U.S. farm and food exports to our two NAFTA partners grew by 156 percent.

“In the years immediately prior to NAFTA,” the USDA continued, “U.S. agricultural products lost market share in Mexico as competition for the Mexican market increased. NAFTA reversed this trend.”

However, U.S. critics argue that Mexico’s more lax environmental enforcement, poor working conditions and drastically lower wages unfairly entice U.S. companies to move their manufacturing operations, draining jobs from Ohio and other industrial states. Critics — as did Obama recently — refer to “entire cities that have been devastated as a consequence of trade agreements that were not adequately structured to make sure that U.S. workers had a fair deal.”

The Economic Policy Institute, a research organization that promotes strong labor organizations, has repeatedly claimed high job losses due to NAFTA. The latest numbers (as of mid-2005) indicate about 1 million jobs in the U.S. alone have been lost as a result of the legislation. As for Mexico, one major study, in 2003, concluded that “NAFTA has not helped the Mexican economy keep pace with the growing demand for jobs. The agricultural sector, where almost a fifth of Mexicans still work, has lost 1.3 million jobs.”

“Democrats have been flirting with outright protectionism for some time now taking a dip with the ‘fair trade’ movement, cozying up to labor and environmental standards, and shunning trade deals in Congress,” wrote Kimberly Strassel last month in The Wall Street Journal, “It’s been a tease, though they’ve been careful not to let things go too far.”

“The real question for U.S. companies is whether the campaign rhetoric combined with a Democratic victory in the Presidential and Congressional elections could mean important changes in NAFTA provisions,” Supply Chain Digest editorial staff recently wrote.

With the Democrats having a chance of winning the White House later this year, it’s maddening that both frontrunners are so vague in what the yet-to-be-determined winner would do. Both are “telling aggrieved members of their base (blue-collar workers) that they understand their pain, and they tell the more satisfied members of their base (globalists, Wall Street types) that they’re not going to upset the manzana cart,” says Slate.

In a recent televised debate, Clinton and Obama both threatened to pull out of NAFTA if elected president unless Canada and Mexico agreed to strengthen labor and environmental standards. Clinton calls for a “time-out” on trade deals (whatever that means), and Obama has promised that one of the first things he would do as president would be to call the leaders of Canada and Mexico to demand tougher labor, environmental and safety standards, as well as to change investment provisions that critics say favor corporate interests too much.

Whether this means small tweaks or the wholesale shutting out of imports remains to be seen.

“Any changes to NAFTA that have a negative impact on [total cost, certainty of supply, quality, government regulations and/or sustainability] will reduce the cost competitiveness of Mexican and Canadian suppliers in any assessment, especially when compared to countries in Latin America and Asia Pacific, unless similar changes are made to our trading relationships with those regions,” John Blascovich, who leads consulting company AT Kearney‘s Supply Management Sourcing efforts in North America, told Supply Chain Digest.

Despite the Democratic rhetoric, the publication notes, odds of dramatic changes to NAFTA “are probably small.” Indeed, it’s hard to imagine Canada and Mexico agreeing to any changes that would hamper the current trading relationship.

Nonetheless, all of this is raising worries about America’s reliability as a trading partner.

What do you think? Is NAFTA and other such trade agreements political theater or a real economic threat?

Resources

North American Free Trade Agreement
NAFTA Secretariat, July 9, 2003

Presidential Candidates’ Key Proposals on Health Care and Climate Will Require WTO Modifications
Public Citizen, Feb. 28, 2008

McCain Lashes Democrats for Criticizing NAFTA
by Steve Holland
Reuters, March 11, 2008

The Facts about NAFTA-Gate
by Brooks Jackson and Viveca Novak
FactCheck.org (via Newsweek.com), March 3, 2008

Hillary Clinton’s NAFTA Stance a Work in Progress
by Dan Janison
Newsday.com, Feb. 29, 2008

U.S. International Trade in Goods and Services December 2007
U.S. Bureau of Economic Affairs, Feb. 14, 2008

Surface Trade with Canada and Mexico Reached a Monthly Record High in October 2007
Research and Innovative Technology Administration (RITA) of the U.S. Department of Transportation, Jan. 7, 2008

Fact Sheet: North American Free Trade Agreement (NAFTA)
U.S. Department of Agriculture, January 2008

Dr. Obama’s Patent Economic Medicine
Economist.com, Feb. 28, 2008

NAFTA’s Cautionary Tale
by Robert E. Scott and David Ratner
Economic Policy Institute, July 20, 2005

NAFTA’s Promise and Reality: Lessons from Mexico for the Hemisphere
by John J. Audley, Demetrious G. Papademitriou, Sandra Polaski and Scott Vaugham
Carnegie Endowment for International Peace (via Eldis.org), November 2003

Trade Tirade
by Kimberly Strassel
The Wall Street Journal, Feb. 29, 2008

What Happens if US Election Results in Big Changes to NAFTA?
Supply Chain Digest, March 3, 2008

NAFTA Nonsense
by Daniel Gross
Slate.com, March 4, 2008

Canada Dismisses U.S. Campaign Talk of NAFTA Change
by Doug Palmer
Reuters, Feb. 21, 1008