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March 18, 2008
NAFTA: Threat or Theater?
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
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Comment
21 CommentsThere is nothing 'Free' about this treaty...doing business with customers in Canada is anything but free...they order products at a fair market price only to get slammed with duties, tariffs and increased shipping costs. Free is the wrong word choice here.
March 18, 2008 1:44 PMNAFTA has backfired, and we need to do something about it... Millions of Americans are unemployed, or underemployed selling goods at big box stores that are made overseas. Goods that used to be made by Americans...
Chinese buy recyclables and scrap from us as raw material and sell it back to us as finished product. Their people are treated poorly, and make the U.S. equivalent of what one pair of pants costs us in a day. The oversight of factories is almost non-existent (hence most of the recalls)
I know it's more complex than this, but something has to be done.
I'll pay more for my kids' toys if I know I'm keeping my neighbor employed, and not risking lead poisoning in the process.
March 18, 2008 2:13 PMThe solution is simple. Stop consuming cheap products!
Since we all know that we will continue to buy economically priced products, NAFTA looks pretty good.
We will lose some jobs to NAFTA countries but get 80% back when they then buy from the U.S. It's a relatively small net loss that we can try to equalize.
Or, we could lose more jobs to China who then buy only 20% from us. That means an 80% lost.
80% down the drain or 20%?
March 18, 2008 2:19 PMMaybe a "time-out" means that we need to take some time to thoroughly analyze the impact, good & otherwise, of these trade agreements we have enacted. Then we need to honestly debate the analysis in terms of all the stakeholders (labor, capital, international relations, etc.). If we just blindly sail one agreement after another through without performing such forensics, we may never know the true impact before it is too late.
March 18, 2008 2:32 PMNAFTA's not the problem, the preferred trading status with China is. Seems to me that a democratic president signed that deal.
NAFTA's been pretty much a saw-off of give and take. China's pretty much a take. Take away jobs from all the NAFTA countries.
March 18, 2008 3:09 PMLet me explain something about the trade agreements, from NAFTA on forward: In every case, each of these agreements has lowered the barriers to US exports which always exceeded US barrieres to inmports.
In the case of NAFTA, Mexico had a 22% duty on automotive imports, while the US had a 5% barrier on automotive imports. That 22% barrier was lowered to zero over the first five years of the agreement. One result of this agreement was the shipment of 8000 Ford Thunderbirds, made in Avon Lake Ohio, to Mexico in 1998. Trade agreements lead to growth in US exports. They promote job gains!
Job loss overseas has been going on for over 35 years. Job loss is the result of US manufacturers decisions to open production facilities in other countries, generally due to lower labor cost. Also involved is the outsourcing of component parts, for the same reason. In the early days, manufacturers opened plants in Mexico. By the 1980's, outsourcing to Taiwan was the big move. From the early 1990's, the trend has been both outsourcing and plant openings in China.
Interestingly, few new facilities have opened in Mexico in the past twenty years. In fact, many are now closing and moving where? China and India. The same is true of Taiwan. It is projected that China will be tapped out w/i the next five years. The limiting factors? The lack of skilled labor and qualified managers and professionl personnel.
This is a global marketplace and that is how it works. We have lost a lot of good paying, low skill jobs in manufacturing. They wont be back. We need to encourage and train the survivors and young people for higher skilled positions that are now waiting to be filled. American manufacturing has a very good future because we innovate. The loss of jobs has passed the peak.
NAFTA had nothing to do with it. Check it out!
March 18, 2008 3:22 PMWhy do we let things get this bad? I did not vote for a candidate that would sell me down the river with a NAFTA agreement. Where was that issue during the presidential campaigns going back over the last 20 years? That was forced down our throats by the last two presidents we had. What does Mexico as a very corrupt country do for its own people? We have their problems now all over the USA. It costs us dearly, too. Tell me something good about NAFTA and I'll try not to laugh.
March 18, 2008 3:26 PMAs a Canadian I am always disappointed that US articles on the free trade agreement always fail to explain to the American people the energy supply conditions in NAFTA for the huge amount of energy exported from Canada to the US.
Cancel the agreement and Canada can send the energy elsewhere then the US really is dependant on the middle east for oil.
Go ahead Democrats---open the can of worms---let Canada get a higher price for its energy exports.
Trade agreements that do not contain basic protections for the work force and the environment are inherently unfair to workers in both countries. Sensible protections that are in place here - such as minimum wage, child labor laws, and environmental protections - tend to increase the cost of production, but I believe that these are essential contributors to our ability to have a large middle class with a relatively high standard of living. Countries like China, with no such protections, are able to compete in part through the abuse of workers and the environment. This should not be allowed in the name of "free trade". NAFTA should be fixed.
One other note: no one from Canada should fear a new NAFTA – they already have protections for workers and the environment.
Unless I'm missing something, Canada isn't the problem with NAFTA, Mexico is. And if memory serves me correctly, wasn't it a republican president (Richard Nixon) that opened that can of worms in China? For what it's worth, presidents from both parties have supported NAFTA.
It's time we take a close look to see what works and what doesn't and revise the entire treaty. Statistics don't always tell the whole story.
March 19, 2008 12:24 AMThis is all theater for Democrat voters, because they do not want to talk about the real problems that have caused the loss of American jobs which are labor unions, excessive taxes and excessive regulations on American companies. The Dem's answer is to equally punish Mexico and Canada to make it fair.
Why do you think there are Mercedes, Honda and BMW plants in the south instead of Ohio or Michigan? - Lower Taxes and No Unions.
Obama's plan to help the US job market is to raise corporate taxes!! That's like pouring gasoline on a fire to put it out. Wake Up!
Statehood for Mexico:
Just think how North America would have faired in the Cold War, if Alaska had not been previously acquired from Russia. Also, where would we be if Jefferson had not acquired the Louisiana Purchase from France.
Stable self-regulated governments ultimately prosper. Building walls doesn't solve social probblems. The Great Wall of China is a relic, the Berlin Wall has fallen, and the "Fenced Wall on the northern boundary of Mexico is a very expensive failure.
The long term resolution is USA statehood for Mexico. Stable honest governance leads to prosperous social conditions. Contented people don't leave there homes to find work.
March 22, 2008 12:50 PMWhat strangeness indeed! Here we have NAFTA pushed forth and signed into law by President William Jefferson Clinton in 1994. Fast forward to 2008 and viola! Candidate Hillary Rodham Clinton says "time out for NAFTA".
Apparently, she does not agree with hubby Bill on this one.
March 23, 2008 1:56 AMAsia is the real problem, Mexico is a minor problem in comparison. But NAFTA is responsible for the massive illegal immigration problem.
Free trade is a farce, it is almost always a one way street, straight into the USA. China, Japan, Korea, and India have major barriers to our products, but we throw our doors wide open.
Most imports are from USA companies offshoring. I say fine go a head send your production overseas, but if you want to bring it back, then you have to pay an import tariff. Fine send your call center to India, then you have to a service tariff. The EU should be our role model not the third world.
March 31, 2008 12:43 AMNAFTA is destroying USA manufacturing and farmers. This 3 Amigos insanity has to STOP!
The same goes for CAFTA and the SPP!
April 23, 2008 2:24 PMAll political candidates tell you pretty much what they think will get them elected. They also do whatever they think will get them re-elected. Therefore we really have no one to blame for this except ourselves. If everyone would consider what is best for the country, instead of what benefits themselves, pols would start doing what is best for the country. That new bridge in your area - was it really needed as bad as the top 10 above? Your local senator or rep probaly worked a little cloakroom magic to get it done & you appreciate him for it, maybe even name it after him.
The unions, the dems, & all the other socialists want you to think that higher wages for you, or higher taxes for the company are going to come out of profits. Wake up - profit is return on investment. You don't let someone hold your retirement savings without paying you, why shouldn't a company with millions or billions invested in land, buildings, and machinery earn a return on that investment?
Those of you who want to put up a big wall & close off imports would have a rude awakening if it happened. Look back at history when we tried it once & think hard about how much more addicted to inexpensive imports we are. I honestly don't think that we would have to worry about cheap imported electronics because nearly all our income would be going to food, clothing, & housing. We would probaly have to eliminate the sale of gasoline & diesel for personal use as our limited oil would all need to go to industry.
Think about the big picture & how EVERYTHING interrelates.
April 23, 2008 4:23 PMYou all have good arguments for and against, that tells me NAFTA is a "mixed bag" and need to be reviewed and evaluated like Chuck Coates said above. NAFTA is "managed" trade, not "free" trade.
April 24, 2008 2:18 AMMy comments did not fit your simplistic view of what
should be said here.
Not sure, emile, but it sounds like a previous Comment submission did not post. If that is the case, please feel free to resubmit your earlier comment. We recently upgraded our publishing system, and I've found that some things (such as links and, yes, comments) have been lost in the shuffle. Indiscriminately.
Apologies to you and any other readers who have recently tried responding to a post only to find it was not published. It seems to be working as it should now.
Cheers,
David
Seems to me the only folks that are getting a good deal from NAFTA and the China Trade Agreements are the Lobbyist Groups and all of the CEO's who are making what millions of dollars in salary every year not counting all of the company stock options too!
All I see us getting out of it so far are loss of jobs, real buying power in wages down 22% from 1990, defective products, dollar down 25% in two years, and now a recession or worse in the making! What happened to the Democracy the founding fathers started with?
April 28, 2008 10:53 AMI think that NAFTA has overall helped most of the countries involved.
Mexico got a pretty good end on it considering the employment increase and the opening of markets.
Secondly, there has been a income increase for the United States.
Also, trade has tripled between the countries involved in NAFTA (in the year of 2007)
I will be interested to see how this all plays out with the 2008 election in the United States
October 23, 2008 9:34 PM
