20 years of North American Free Trade Agreement
NAFTA’s legacy is that is has served as a template for other agreements, right up to the proposed Trans-Pacific Partnership.
Special to The Seattle Times
You are about to get a fire hose of journalism, advocacy and spin as NAFTA marks its 20th anniversary next month. Ross Perot will reappear with his twangy prophesy of ”a giant sucking sound.” Then life will go on.
And yet the North American Free Trade Agreement deserves better. So does our national discourse, if we are still capable of one.
The reader should know that NAFTA and I go all the way back. When I was at the Rocky Mountain News in Denver, a parade of high-ranking officials from the George H.W. Bush and Clinton administrations came through to sell the agreement.
All said it would increase American exports and jobs, with minimal disruptions. Sure, broom-making and the like would go south, but Mexico would buy more American machine tools and software. Another important claim: By helping Mexico’s economy rise to First World status, NAFTA would slow or stop illegal immigration.
At the time, it seemed plausible. The United States was the world’s largest trading nation and the world’s biggest exporter. The Rust Belt had smartly recovered after painful restructurings of the 1980s. Savings and loan kingpins, not trade, had caused the mild 1991 recession. Newfangled high-tech was America’s future.
No wonder at the time many Americans didn’t have strong opinions on NAFTA. Al Gore famously dismantled Perot on Larry King. It passed Congress. And that was that.
But it wasn’t. The country we had been assured was rising to become a stable, advanced democracy plunged into crisis in late 1994 when the peso collapsed, hot investment money withdrew and the new Mexican president faced an armed rebellion in Chiapas state.
It took American intervention — billions of dollars and loan guarantees, not Marines — before the trouble eased and NAFTA could get a fair test drive.
How did it perform? It depends on where one sits.
The nonpartisan Congressional Research Center says that the overall effect on the huge U.S. economy, for better or worse, has been ”modest.”
Trade between the United States and Mexico and Canada has increased dramatically. Last year, Canada and Mexico were the No. 1 and No. 2 destinations for U.S. merchandise goods exports.
Still, a merchandise trade surplus with Mexico in 1993 turned to a $61 billion deficit last year. The trade deficit with Canada was $32 billion. As of 2011, the United States still ran a services surplus with Mexico.
To economist Robert Scott of the Economic Policy Institute, those deficits had displaced 693,000 American jobs by 2010, a majority in manufacturing.
Like much else with NAFTA, precisely assessing its effect on jobs is difficult. Some jobs were lost, others created. The first years of the agreement coincided with the greatest jobs boom in modern American history.
No serious debate exists that many manufacturing operations closed here and moved to Mexico. This has contributed to the stagnation of wages and even their decline for many blue-collar workers.
Big corporations and investors benefited. NAFTA provided a guarantee that there would be no repeat of the nationalization of foreign assets that happened during the Depression. For example, Kansas City Southern is now one of the biggest operators of Mexico’s formerly nationalized rail system. Mexican billionaire Carlos Slim is a major investor in The New York Times.
Average Mexicans saw mixed results. A flood of American imports destabilized Mexico’s small-scale farms and factories. This was a major cause behind the historic wave of illegal immigration to the United States and broke one of NAFTA’s promises.
Other assurances proved difficult to realize. Side agreements on labor and the environment negotiated by the Clinton administration amounted to little. Worries about integrating the economies of two advanced nations with a developing country proved correct.
NAFTA’s dispute-resolution mechanism, which critics say trumps American law, did little to settle the long-running fight between the United States and Canada over softwood lumber. Washington claims Canada’s timber industry is unfairly subsidized and has cost jobs, including in the Northwest. The disagreement has persisted for years despite the two countries having signed NAFTA’s predecessor agreement in 1987.
Otherwise, Washington state largely won in NAFTA. In 2012, Canada was the state’s third-largest export destination and Mexico sixth. Aerospace is a huge factor, one example being Aeromexico’s $11 billion order with Boeing last year. Canada is the largest importer to the state, while Mexico ranks 14th.
Today, Mexico is more of a democracy than ever before, enjoying a much more advanced economy than in 1993 and a rising middle class. Mexico used NAFTA as a blueprint to sign similar deals with many other countries.
Mexico’s narco troubles and illegal immigration have more to do with American appetites for drugs and cheap labor than with NAFTA. “Poor Mexico, so far from God and so close to the United States,” as Mexican President Porfirio Diaz is credited with saying.
Today, NAFTA’s legacy is that it has served as a template for other agreements, right up to the proposed Trans-Pacific Partnership. Although they increase trade, they fail to reduce our deficit. And all are more managed trade — not merely lowering tariffs but picking winners and losers — than what most people would consider free trade.
No wonder that an Angus Reid poll last year found that pluralities in the United States and Canada dislike NAFTA.
As for Ross Perot, he was right. There was a giant sucking sound of American jobs. But the force behind it was less NAFTA and more mercantilist China, a force barely considered 20 years ago.
You may reach Jon Talton at email@example.com
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest