FOR Barack Obama,
hope can triumph over anything - except for open trade with a
neighboring country with an economy 1/20th the size of ours. Then, all
Obama's culprit is Mexico, our third-largest
trading partner. It is trade deals like NAFTA - the 1993 accord
eliminating tariffs among America, Mexico and Canada - that "ship jobs
overseas and force parents to compete with teenagers for minimum wage
at Wal-Mart," Obama intones.
Feel inspired yet?
big picture doesn't justify this Dickensian evocation of gloom. Since
1993, the US economy has grown by 54 percent. The jobless rate has
dropped from 6.9 in 1993 to 4.9 today. Manufacturing output has
increased by 63 percent. Canada and Mexico are our first- and
second-largest export markets, and US merchandise exports to them have
increased at a slightly faster clip than exports to the rest of the
NAFTA has clearly been a (small) benefit to the economy
of both the United States and Mexico. Critics focus on the large US
trade deficit that opened up with Mexico shortly after the adoption of
NAFTA, but that had more to do with the decline of the peso and a steep
Mexican recession that dampened demand for our exports. Since 2001, our
manufactured-goods deficit with NAFTA countries has been stable, making
the agreement an implausible villain in the hollowing out of America.
Obama's complaint, ultimately, is with the long-term liberalization of
the Mexican economy. Beginning in the mid-1980s, Mexico joined the
General Agreement on Tariffs and Trade, lowered its tariff rates,
reduced restrictions on foreign investment and deregulated state
industries. As a result, both US exports to and imports from Mexico
grew rapidly prior to NAFTA.
Because of this dynamic, the Congressional Budget Office estimates
almost all of the increased trade between the US and Mexico would have
happened without NAFTA. The effect of the agreement itself - rather
than the broad trend of liberalization - was marginal. "Relative to the
size of the economy," the CBO writes, "the increases in exports never
exceeded 0.12 percent of US GDP, and the increases in imports never
exceeded 0.11 percent of US GDP."
To blame NAFTA for the
long-standing trajectory of US manufacturing - the sector has been
losing jobs since 1979 - is the politics of scapegoating. What is Obama
going to do if elected? Browbeat Mexican President Felipe Calderon to
return his country to the statist and autarkic policies of the 1970s?
Bizarrely, Obama lately has directed more barbs toward Mexico than
Iran, whose offense is only killing American servicemen and pursuing an
illicit nuclear program rather than sending us imports and welcoming
In his book "The Audacity of Hope," Obama
maintains a studied ambivalence about NAFTA. He didn't emphasize
populist broadsides against the deal until it became imperative for him
to win down-scale white voters in states like Wisconsin and Ohio.
It's an odd time to demonize NAFTA. US manufacturing went through a
deep recession from 2000 to 2003, shedding 3 million jobs. It has
recovered since, and 2006 was "a record year for output, revenues,
profits, profit rates and return on investment," Daniel Ikenson of the
Cato Institute writes.
As Frank Vargo of the National
Association of Manufacturers points out, when manufacturing jobs
drastically declined from 2000 to 2003, manufactured-goods imports
essentially were stagnant. Trade affected the manufacturing recession
not through an increase in imports, but a decline in exports. That,
coupled with a decline in domestic consumption of manufactured goods
coinciding with the US recession, accounted for the large job losses.
Obama always says that politicians should tell voters what they need -
not what they want - to hear. But no one in the Democratic Party will
emphatically say that trade is a net benefit to the United States, even
if it brings painful - and ultimately unavoidable - dislocations.
Hillary Clinton always was lukewarm about NAFTA, and even Bill is
skittering away from his legacy. On trade, Obama's opportunistic
fear-mongering defines the new Democratic orthodoxy.