Saturday , June 23, 2018

NAFTA: True to Campaign Rhetoric?

Publisher’s Post

NAFTA: True to Campaign Rhetoric?

“NAFTA has destroyed American jobs!”

That seems to be a common refrain in our current Presidential race, though it is NOT new.

John Paul Galles Publisher
John Paul Galles
Publisher

Indeed, in Ross Perot’s 1992 bid for the Presidency, he referred to NAFTA as the “giant sucking sound” of jobs leaving the United States for Mexico, rallying support by provoking fear in American workers. Sound familiar?

The U.S. has long been negotiating trade agreements. In 1947, 23 nations signed the General Agreement on Tariffs and Trade (GATT). That was followed by a much larger group (123) of nations participating in the Uruguay Round of GATT in 1994, which established the World Trade Organization (WTO) in January 1995. GATT remains in effect under the WTO framework to this day.NAFTA_Globe_and_Flags

In addition to these, the U.S. has entered into and continues to negotiate trade agreements with nations around the globe including Israel, Columbia, Chile, Australia, Bahrain, Morocco, Peru, Panama and Singapore.

Here in North America, NAFTA, the North American Free Trade Agreement, is a three-country accord negotiated by the governments of Canada, Mexico and the United States to eliminate most tariffs on products traded among the three countries. Implemented in 1994, it was ushered in by both Presidents George H.W. Bush and Bill Clinton as well as members of Congress from both political parties.

As of 2015, the NAFTA trade volume of U.S. imports from Canada were approximately $312.1 billion and exports $279.9 billion, and U.S. imports from Mexico were $309.1 billion while exports $236.4 billion.  While both have been trade deficits for a number of years now, it is important to note that U.S. exports are only about 16 percent of our GDP. U.S. imports to Canada and Mexico represented around one quarter of all our imports; and exports to Canada and Mexico represented around one third of all our exports.

As Geopolitical Futures in the NAFTA article in this week’s CLT.biz Insights points out, “There is no definitive evidence illustrating NAFTA’s impact on the U.S. job market…due to the fact that both sides of the debate provide numbers to support their arguments that are at best estimates given the complexities of the economy and shortfalls in modeling.”

Evaluating the extent of NAFTA job losses also needs to take into account concurrent changes in our economy. Most significant has been the advancement of technology. American manufacturing has undergone a huge transformation of industries to more automated and advanced manufacturing requiring fewer workers. The transformation continues at an increasing pace. Futurists have identified major trends toward even fewer workers as Manufacturing 3.0 processes are being driven by machines able to adapt to change on their own.

The American economy itself, which experienced dramatic economic growth during the 1990s and early 2000s, has also been impacted by the huge loss of over 9 million jobs during the Great Recession from 2008 to 2010. Our economy has not yet fully recovered.

NAFTA Trade 2015On the other hand, during this same time period, global merchandise trade has increased fivefold. Finished goods are produced nearly everywhere and shipped nearly anywhere to meet demand.

Pre-NAFTA there were a number of studies predicting its impact. On the whole, these studies expected NAFTA to have a negligible to mild effect—in either direction—on U.S. employment.

Job loss estimates post-NAFTA have varied. However, they are not nearly as overwhelming as the current political upheaval would have us believe. The Economic Policy Institute (EPI) study puts the number at one million jobs. While the U.S. Department of Labor data reported that about five million manufacturing jobs have been lost since NAFTA, another report by think tank Public Citizen looks further at that data and estimates that only one in four of these job losses was NAFTA-related.

In 2008, President Obama pegged the number of jobs lost due to NAFTA at about one million. He compared that loss to the large-scale annual churning in the U.S. market where approximately 17.5 million jobs are lost each year and more than 18 million created, concluding that NAFTA losses account for less than one percent of annual job churn.

The Trilateral Commission, which oversees NAFTA, at its meeting in Ottawa, Canada, in 2008, has itself observed, “NAFTA’s critics were correct in arguing that governments have not pursued domestic policies that enable firms and workers to take full advantage of the opportunities created by the pact…and help manage adjustments to the new competitive environment so that political support for the pact can be sustained.”

They have described NAFTA as a living document and updating it as both necessary and desirable to ensure that it contributes to the sustainable economic growth in all three countries.

Given the fact that NAFTA was passed with bipartisan support, that current political rhetoric grossly overestimates job losses by anybody’s estimates, that the Trilateral Commission consistently monitors NAFTA, and that the Mexican government has already expressed an openness to renegotiation, it would be foolhardy to have a simplistic and negativistic attitude toward NAFTA in general.

As with the surprising vote in favor of BREXIT (and I hope you will read Gillian Tett’s observations on that in this week’s CLT.biz Insights), there is a marked rise of nationalism around the globe. The nation-state is reasserting itself as the primary vehicle of political life. Multinational treaties are being challenged as not in the national interest primarily because they are perceived as bad for jobs.

Trade matters are highly complex as (i) they are impacted by a number of factors including economics, politics, technology, and other marketplace disruptions that are not necessarily under the same control, and (ii) since they do not involve some players, they are subject to economic sabotage like “dumping” (exporting at below price).

Trade agreements promote the free exchange of goods and services and they are essential to opening new trade opportunities.

It would be most helpful if the political candidates were more articulate on the aspects of foreign trade as it becomes increasingly important to our economic welfare. By the same token, we ourselves should not easily condemn trade practices without taking the time to be reasonably informed rather than repeating ridiculous rhetoric.

John Paul Galles, Publisher

Please feel free to contact me 980-999-1249 or jgalles@CLT.biz!

 

 

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