I recently had a political discussion with a friend and the subject of NAFTA came up. He claimed that it was “mutually advantageous for Mexico, the U.S. and Canada. I had been opposed to NAFTA back when it was signed into law in 1993, as well as other so-called “free trade” agreements of the same mold but hadn’t really looked at it in a long time, being more recently preoccupied with the Trans-Pacific Partnership or “TPP.” So, I decided to take another look and found that it was worse than I had ever imagined.
In 2014 Public Citizen, a non-profit consumer rights advocacy group and think tank founded in 1971, which does not take either government or corporate funds, released a report entitled NAFTA’s 20 Year Legacy and the Fate of the Trans-Pacific Partnership. The first thing the report notes is that polls showed “broad opposition to the TPP among Democrats, Republicans and independents of diverse geographic and socio-economic groups.” It then poses the question of what could possibly unite such a diversity of Americans otherwise deeply divided along partisan lines? The answer it claims was 20 years of shared experience with NAFTA and other trade agreements of its type.
NAFTA was fundamentally different from past trade agreements in that it was only partially about trade. In the words of the report:
[I]t shattered the boundaries of past U.S. trade pacts, which had focused narrowly on cutting tariffs and easing quotas. NAFTA created new privileges and protections for foreign investors that incentivized the offshoring of investment and jobs by eliminating many of the risks normally associated with moving production to low-wage countries. NAFTA allowed foreign investors to directly challenge before foreign tribunals domestic policies and actions, demanding government compensation for policies that they claimed undermined their expected future profits. NAFTA also contained chapters that required the three signatory countries to limit regulation of services, such as trucking and banking; extend medicine patent monopolies; limit food and product safety standards and border inspections; and waive domestic procurement preferences, such as Buy American policies.
The same sweeping terms were proposed for the TPP, a massive agreement with 11 Asian and Latin American countries that was premised on expanding the scope of the NAFTA model.
When I shared the report with my friend, a self-described liberal Democrat, he criticized it as being “extreme left revisionism,” “ridiculous,” “pointing blame indiscriminately.” Furthermore, he said it was, “not a realistic view,” that I “needed to read a more realistic global view” and that, finally, the criticism of NAFTA presented in the Public Citizen report was why, “extreme progressives for all intents and purposes helped usher 45 into office.”
So, I read an article he suggested by a “liberal” author. Now my friend was highly critical of my source, so I would note that his was Business Insider, a for profit, corporate publication. The author was Elena Holodny, who graduated from Columbia University in 2014 with a concentration in economics. Previously she had reported for CNBC, NBC News, and WNYC, and also worked at the International Criminal Tribunal for the former Yugoslavia. An impressive resume but I couldn’t find anything to suggest that she was politically liberal. The article, Trump wants to renegotiate NAFTA — here’s what you need to know can be found here: http://www.businessinsider.com/what-is-nafta-is-it-good-for-america-2017-2
None of the foregoing is necessarily a reason to dismiss anything Ms. Holodny says out of hand, so let’s examine a portion of her article.
Holodny observes that:
[I]f the US can grow corn more efficiently than Mexico than it makes more sense for the US to grow a lot of corn and for Mexico to build a lot of cars and then for both countries to trade cars for corn with each other, rather than for each country to less efficiently do both things on its own.
More concretely, one effect of increased economic integration would be for U.S. firms to move production over to Mexico where labor is cheaper.
Holodny doesn’t mention any forms of efficiency available in Mexico other than cheaper labor, so it would appear that this was the main incentive to relocate automobile production south of the border. She also doesn’t seem to be bothered by the question of why wages are so much lower in Mexico i.e. is it strictly economic or does politics play a role? In addition, Holodny also makes no mention of the fact that part of the reason the U.S. produces corn so “efficiently” is that both its remaining small farmers and big agribusinesses still receive generous — and one would think “free trade” distorting — subsidies from the federal government.
Public Citizen claims that the export of subsidized U.S. corn under NAFTA’s first decade destroyed the livelihoods of more than 1 million Mexican farmers and about 1.4 million additional workers whose livelihoods depended on agriculture. The mass dislocation caused exacerbated the widespread instability and violence of Mexico’s spiraling drug war. Desperation led many of those displaced to Mexico’s maquiladora factory zone near the border with the U.S. This contributed to both downward pressure on wages in the zone and a doubling of Mexican immigration to the U.S.
As the report notes, NAFTA-style trade agreements also help explain, at least in part, soaring income and wealth inequality in the United States. NAFTA has placed downward pressure on wages for the middle and working-class by forcing better paid U.S. manufacturing workers to compete with poorly paid (and often politically oppressed) workers abroad. The resulting displacement of those better paid U.S. workers has further depressed middle class wages by adding to the surplus of workers seeking lower-paying service sector jobs. NAFTA also contributes to rising inequality by enabling employers to threaten to move their companies overseas during wage bargaining with workers. For instance, the Public Citizen report cites a Cornell University study commissioned by the NAFTA Labor Commission which found that after the passage of NAFTA, as many as 62 percent of U.S. union drives faced employer threats to relocate abroad, and the factory shut-down rate following successful union certifications tripled.
The Trump phenomenon didn’t just pop out of the woodwork in 2016. The material conditions for his campaign, as well as the more positive, promising campaign of Bernie Sanders, were laid years in advance. The role of “free trade agreements” like NAFTA in helping to create those conditions seems fairly evident to me. So, I will conclude by asking once again, who is really more responsible for Trump, NAFTA and trade agreements like it or “extreme progressives,” who dared to shine a critical light on them, made principled calls for their revision and reform of the trade negotiation process going forward?