Clinton, Trump both wrong about NAFTA

Daniel Griswald:
With all the challenges confronting the United States, the two major presidential candidates have committed themselves to picking a needless trade fight with the two biggest customers for U.S. exports: Canada and Mexico. Hillary Clinton recently joined Donald Trump in threatening to reopen and potentially scuttle the 22-year-old North American Free Trade Agreement. But tearing up NAFTA would be an economic and foreign-policy blunder of historic proportions.

NAFTA was a bipartisan achievement, approved by Congress with strong Republican support and signed into law by Bill Clinton in 1993. Once fully implemented, the agreement eliminated virtually all trade barriers between the United States, Canada, and Mexico. By every reasonable measure, NAFTA has been a success.

The trade agreement delivered its core promise of deeper North American economic integration. Since its passage, our two-way trade with Canada and Mexico has more than tripled, with trilateral trade flows within NAFTA topping $1 trillion in 2011. Canada and Mexico are now the No. 1 and No. 2 foreign markets, respectively, for U.S. goods and services, collectively buying 34 percent of total U.S. exports.

NAFTA delivered the level playing field politicians say they want. Before NAFTA, Mexico imposed tariffs on U.S. agricultural and manufactured goods that were significantly higher than U.S. tariffs on Mexican goods. NAFTA reduced all duties in all directions to zero. What could be more fair than that?

As a result, North American production and capital markets are highly integrated, making companies in all three partner countries more competitive in global markets. The auto sector is especially intertwined, going back to the U.S.-Canada auto pact of 1965. NAFTA is a major reason, despite other challenges, the North American economies have outperformed those of the European Union and Japan.

Critics of NAFTA make outlandish claims about its impact on American workers and industry. Trump asserts that the agreement has been "totally disastrous" for the United States. More than two decades ago, H. Ross Perot warned that passage of NAFTA would unleash "a giant sucking sound" of jobs and investment going south of the border. Critics were wrong then, and they're wrong now.

NAFTA was never going to have a huge positive or negative effect on the United States, though most studies show a modest positive effect on the U.S. economy. When NAFTA took effect, our economy was more than 17 times larger than Mexico's, our barriers were already low, and our two-way trade with Mexico was a mere 1.4 percent of the U.S. gross domestic product.

Manufacturing investment to Mexico did increase after NAFTA, but it remains a fraction of annual manufacturing investment in the U.S. domestic economy. In the five years after NAFTA's passage, the U.S. economy added more than 500,000 manufacturing jobs. Real, inflation-adjusted manufacturing output is up 40 percent since NAFTA came into effect. The loss of manufacturing jobs since 2000 wasn't because of NAFTA, but because of gains in productivity fueled by automation.
There is more.

Nafta has also been a boon to states like Texas.  Economists estimate that the NAFTA deal has bee a net positive for Texas.  There are now over a million jobs in Texas tied to trade.  One example of the produce industry where Rio Grade Valley produce companies now import and deliver Mexican produce as well as Texas produce.   It has added jobs on both sides of the river and has given US consumers more choices for seasonal produce.

The oil and gas industry has also profited from expanded trade with Mexico.  Texas is now exporting natural gas produced in this country to Mexico.

There may be some states who have not done as well as Texas.  The economies of the forced union states have not been as prosperous as the right to work states.  The high tax, high regulation states have also not done as well at job creation as low tax, low regulations states.  They may wish to blame their circumstances on NAFTA but in reality is is their own bad policies that is dragging them down.

Trump and Clinton are both wrong on this one.


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