NAFTA Ain't It

Most Democrats, and even some conservatives (but not John McCain), blame the North American Free Trade Agreement for America's economic ills. Philippe Legrain busts this myth in Sunday's Washington Post:

1 NAFTA has transformed the U.S. economy.

Hardly. Critics rightly point out that NAFTA's economic benefits were oversold, but they're wrong to heap the blame for all America's woes on it. NAFTA, which expanded the existing Canadian-U.S. free-trade area to Mexico, has had only a marginal effect on the U.S. economy. Yes, exports to Mexico have more than tripled since 1993 -- but at $161 billion last year, they still account for only 1.1 percent of the economy. Considering that total U.S. exports have more than doubled over the same period, to more than $1.6 trillion a year, the boost from NAFTA is just a trifle.

Though imports from Mexico have risen nearly five-fold since 1993 -- potentially threatening some U.S. businesses -- they only amounted to $230 billion in 2007, or less than 1.7 percent of the $14 trillion U.S. economy. That's peanuts. And for all the fears of factories being shipped south on the back of an 18-wheeler, the total U.S. investment in Mexican factories and offices adds up to a mere $75 billion. Mexico received just $19 billion in foreign direct investment in 2006, while the United States attracted $175 billion. . .

2 NAFTA has put countless Americans out of work.

Not really. Obama claims that NAFTA has destroyed a million American jobs. Suppose he's right. Total employment still rose by 27 million jobs between 1993 and 2007, to 137.6 million, and the unemployment rate has fallen. At worst, then, NAFTA has cost only a tiny minority of American workers their jobs. And even that is a one-sided view. As Mexico opened its economy to U.S. trade and investment, NAFTA created new American jobs, too.

NAFTA critics also decry the trade deficit with Mexico, but at $70 billion a year, it accounts for only 0.5 percent of the U.S. economy. These figures should quiet NAFTA foes. .

3 "Fixing" NAFTA would be easy and cost-free.

Not so. Any changes would require a lengthy and complex renegotiation with Canada and Mexico. As Canada's prime minister, Stephen Harper, has pointed out, "Of course, if any American government ever chose to make the mistake of opening [NAFTA], we would have some things we would want to talk about as well." Just the threat of pulling out of NAFTA would do some damage, too. Far from boosting America's international reputation -- something all presidential candidates agree is important -- it would fan fears that the United States is an unreliable ally and discourage foreign governments from committing to future agreements with Washington. . .


4 Making NAFTA's labor and environmental regulations stricter would benefit U.S. workers.

Probably not. Clinton wants to make the treaty's labor and environmental provisions "far tougher and absolutely binding" and to require that all future trade agreements include similar language. The stated purpose is to raise labor and environmental standards around the world and to make it harder for companies to ship jobs to countries where workers have fewer protections than in the United States. But America's trading partners would probably see the move as covert protectionism -- since when have the Teamsters cared about Mexican wildlife? -- and may retaliate. Meanwhile, consumers would probably resent the increased cost of their imports.

In any case, tough social clauses could backfire on the United States. . . Given that Canada and Mexico have joined global efforts to curb climate change, they might wish to restrict American imports if the United States continues to hold back.

There's more; read the whole thing.