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NAFTA Nonsense By: Rich Lowry
New York Post | Wednesday, February 27, 2008


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 is despair.

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?

The 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 world.

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 our investment.

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.




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