There’s been a bit of clamoring behind the scenes here at Urbanagora for somebody to do a post about NAFTA, since there’s been some recent debate about it going on in the Democratic primary. I thought I’d toss up my views on the subject, which are admittedly a little scrambled. I’m not an economist, so perhaps my views on this should be taken with a grain of salt. I have studied NAFTA a little bit in different contexts, but generally more from an international relations point of view than an economic one.
Those caveats aside, my bottom line, as laid out in more detail below, is that (1) NAFTA has been an overall benefit to all the parties involved, (2) both the detractors and promoters of NAFTA overstate their case because ultimately NAFTA isn’t that important, (3) it would be a pretty bad idea for a president to push aggressively for a renegotiation and it would be a really bad idea for us to withdraw, (4) it’s important for the United States to respond to the negative consequences of free trade with greater access to public services, and (5) the US also has to focus more on reducing trade barriers not just to blue-collar industries but professional ones as well (something a lot of free trade advocates have been reluctant to do).
The first point is obviously a complicated one, and I have neither the space nor the knowledge to lay the argument out in its entirety. It’s mostly based on the assessment of people who know more about this sort of thing than I do and whose judgment I trust (e.g., Berkeley economics professor, former Clinton administration economic advisor, and blogger Brad DeLong, who can be seen talking about NAFTA here). But there have been some pretty clear benefits: a booming export industry for Mexico, Mexico becoming a safer place for foreign investment, etc. I would just add that those benefits are made even more clear if we don’t just look at it in purely economic terms, because there have been important non-economic results as well: NAFTA has helped Mexico develop a stronger respect for the rule of law (particularly property rights), and it’s created an incredibly solid platform for international cooperation among the US, Canada, and Mexico (it’s a lot more difficult to turn against one another when your economies are so integrated).
Having said that, the second point is just as important. NAFTA just isn’t that important for the United States economy either way. The economic woes of blue-collar workers in Ohio and elsewhere has far, far less to do with Mexico than it does with China, India, and the old Soviet bloc in eastern Europe. The same, incidentally, goes for CAFTA: trade with Peru doesn’t have a huge impact on our economy either way and politicians shouldn’t try to argue that it does. The countries where most of the pressure is coming from are countries we don’t have formalized trade agreements with, but because NAFTA and CAFTA are concrete policy proposals to point at, everybody focuses a lot of energy debating them. But the real problem isn’t coming from trade agreements, it’s coming from the fact that it’s a whole lot easier today to ship and transport and communicate and do all of the other things that used to present far more significant barriers to trade.
Which leads us into the third point. Canada and Mexico are affected a lot more by this agreement than the US is, and they are much more dependent on its continuance. For the United States to take out the big guns and start pushing for a renegotiation or threatening to pull out would have really bad consequences in terms of our relations with these countries, and in the end it could do us more harm than good. The Canadian Prime Minister has already declared that “[i]f any American government chose to make the mistake of reopening that we would have some things we would want to talk about as well,” presumably referring at least in part to the softwood lumber dispute. Just as NAFTA was a tool not just for economic change but for the promotion of friendly relations, for the United States to start rocking the boat would have broader consequences for diplomatic relations, which can affect issues well beyond NAFTA itself.
At the same time, the fourth and fifth points are important ones to make. As much as a lot of what I have said so far is likely to please our more conservative readers, NAFTA and trade with low-wage countries in general does to some extent promote inequality here in the US. I don’t propose responding to that with protectionist measures, but it does provide a stronger case for greater provisions of public services: health care, education, transportation, welfare, public housing, etc.
It is also undoubtedly true that NAFTA is to some extent an act of corporate welfare: the greatest beneficiaries in America of this agreement are foreign investors and the greatest losers are blue-collar workers. That’s because NAFTA and other free trade agreements only focus on the trade of goods without a similar focus on professional services like doctors, lawyers, etc. There are substantial barriers to the trade of those services, which, as is laid out extensively in this paper (PDF) by Dean Baker, is an issue of trade and not immigration. An excerpt describing the sorts of restrictions that need to be lifted in order to address the unequal consequences of our free trade policies:
1) Current law prohibits the U.S. government from hiring foreigners (including green card holders), unless no U.S. citizen could be found to do the job. A comparable restriction for goods would prohibit the government purchase of any imported item, as long as the same good was produced in the United States.
2) The requirement for a green card can be a substantial obstacle to employment for foreign professionals. The delays and the uncertainties in the process provide a strong incentive for employers not to hire foreign professionals.
3) Prevailing wage laws would prevent an employer (for example, a hospital) from explicitly hiring foreign professionals with the purpose of saving money. A comparable law for goods imports – one that prohibited companies from importing goods in order to save money – would be a blatant violation of numerous trade agreements.
And those are my two (okay, substantially more than two) cents on the subject. Thoughts?