NAFTA Bashing Heats Up

It's an election year, US workers are under duress and NAFTA bashing has hit the boiling point.

But try to affix a bulls' eye of blame on NAFTA, even just for job losses, and you'll find it's a moving target. 

Both Democratic presidential hopefuls Hillary Clinton and Barack Obama promise they will get the US to back out of NAFTA unless it's amended if they win the White House. Clinton now says her husband did "make mistakes'' when signing NAFTA into law, adding ``we have to change the basic provisions.'' President George W. Bush and the leaders of Canada and Mexico are defending NAFTA and its $930b in cross-border trade at a summit meeting today in New Orleans. 

Millions of Americans, many with thoughtful positions, oppose what they call a globalist agenda. For instance, GOP presidential candidate and Congressman Ron Paul opposes both the World Trade Organization and NAFTA, saying they are not about so-called "free trade...in practice," but are really about free trade for special interests (such as agriculture, Big Pharma and financial services).

The fear is NAFTA is merely a delivery mechanism to lock in a sweeping corporate rights agenda, with frightful talk of more trucks from Mexico given wider latitude on US highways, a supposed new NAFTA Superhighway cutting through the US to connect Mexico to Canada, even talk of a new North American Union, all of which many say would be dreadful for this country and all of which is just now buzzing through the blogosphere.

It's time to get a fresh take on this controversial issue.

First, job losses. The US added 22m private sector jobs since NAFTA was enacted. According to stats from the Bureau of Labor Statistics, the US had 93.1m private sector jobs in December of 1993, the month before NAFTA went into effect. Private sector jobs now stand at 115m in March 2008, notes Fox Business senior economist Mark Lieberman. 

To be sure, real hourly wages are moving at a glacial pace, up from $13.66 in December 1993 to $15.08 today, in constant 2003 dollars.

But you can't blame slow wage growth solely on NAFTA. More jobs were lost to China than Mexico, economists note, with China's low pay having an effect on wages here.

Also, economists now say that any jobs lost to NAFTA were made up in other sectors of the US economy.

Better pay in the private sector would be better, of course, and it's not such a good thing that taxpayer funded public sector jobs are growing. The fear is it's easy for the US government to artificially create job growth by hiring bureaucrats to dig holes and refill them (what one analyst calls the inverse of Joseph Schumpeter's economic theory about creative destruction, the government is all creation and no destruction).

Next up, the US trade deficit arising from NAFTA. Media commentator Pat Buchanan, a protectionist with an open-pored hostility to free trade, recently wrote a letter to a newspaper decrying the fact that "where Canada's sales to the US, around $320b in 2006, amount to nearly 25% of its GDP, US sales to Canada, about $260b, amounted to about 2% of our GDP. If we shut the border tomorrow, there is no doubt who goes belly up."

Buchanan adds: "Why are Americans upset? Since NAFTA, but by no means solely because of NAFTA, we have run $5,000b in trade deficits."

But Donald J. Boudreaux, chairman of the economics department at George Mason University in  Fairfax, VA says you should look at it this way. Since NAFTA, $5,000b worth of capital has flowed into the US, capital that has "helped to create and modernize many US companies, to fund research and development, to train workers, and to ease the burden imposed on Americans by Uncle Sam's profligacy," Boudreaux says. "Does Mr Buchanan really lament this capital inflow?"

And while protectionists are on the march free traders are not on the run. Instead, they are scrutinizing what the data really say. John Engler, president of the National Association of Manufacturers and former three-term governor of Michigan, points out in an editorial in The Wall Street Journal that 95% of the $62b increase in the US's NAFTA deficit, a trade deficit that now stands at $140b, up from $77b in 2000, is due to energy imports.

We need this oil from Canada and Mexico. Who else is going to step in. Venezuela? Iran?

Engler also notes that after you strip out energy, the remaining trade deficit due to NAFTA has hardly budged since 2000 and that the US has exported an equal amount of agricultural and manufactured goods to NAFTA countries. And Engler asks why complain about that $3.5b when our trade deficits with Europe and China are far bigger?

US exports still comprise 25% of the US's economic growth rate, analysts note. The US remains one of the largest exporters in the world, selling $1.6t in goods and services abroad last year--the fourth straight year of double-digit export growth, says US Commerce Secretary Carlos Gutierrez. 

The Congressional Budget Office says the impact of NAFTA on US GDP has been miniscule. On average, the US's GDP has grown 3.7% since 1993 and the economy has seen sharp drops in unemployment. Trade now accounts for 27% of American economic output annually, vs about 20% in 1993.

Canada has become a vital trading partner since NAFTA debuted. It is the largest trading partner for 36 to 50 US states, and Pennsylvania exports more to Canada than its next seven markets combined.

It's been pointed out that the eight Great Lakes states including Ontario represent a big 30% of North America's employment and output and a robust 36% of its manufacturing jobs. It's been noted, too, that each day, about $900m worth of goods travel between Ontario and the US's Great Lakes partners. Each year $122.8b worth of goods, 6.5m trucks and 6m cars cross the Detroit-Windsor gateway alone--the busiest in the world.

This, at a time when the region is hurting badly from the downturn in the US automotive sector. 

And listen to the warnings about the can of worms the US would open up if this country renegotiated of NAFTA. Already it's being reported that Mexico would present its own demands on easing legal migration or protecting corn farmers.

"If we are going to have a serious negotiation, it's not going to be one-sided," says Luis de la Calle, a former NAFTA negotiator for Mexico who is now a political consultant. "Let's put labor and the environment back in NAFTA, but in exchange for what?"

Could Canada and Mexico also demand truly open borders, would Mexico then demand that any border fence be halted, could both demand special immigration exemptions and guest worker programs?

Could US agricultural growers face economic fines while other countries sign free trade agreements with our competitors?

As for workers losing jobs, aren't we to blame for inadequately educating and training our workers to compete in the global economy and dooming them to a life of low-paying jobs?

How many jobs would the United States lose if it were to quit the global marketplace?

Won't the jobs of the future increasingly come from selling our goods and services to a world economy that is growing inexorably?

And when are we going to outsource expensive, overpaid CEOs?