Economists: Don't Blame NAFTA For Downturn

Washington Post Analysis: Many Say NAFTA Has Been A Net Plus, If A Modest One, For The Economy

(Washingtonpost.com)  This story was written by Michael A. Fletcher.

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The North American Free Trade Agreement is once again a prime scapegoat for the nation's growing economic troubles, drawing blame for sending jobs overseas and flattening wages for U.S. workers. That sentiment has intensified as the economy has deteriorated, a fall punctuated last week by the steepest job decline in five years.

Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.) have fed the anti-free-trade view in campaigning ahead of the Pennsylvania Democratic primary April 22. Facing voters in a state that has lost more than 200,000 manufacturing jobs since 2001, Obama has promised to stand against trade deals that cost U.S. jobs, while saying Clinton supported NAFTA in the past. Clinton counters that she has always opposed the deal, even as her husband signed it as president, and she has promised to call a "timeout" on future trade deals if elected president. "I don't think NAFTA has been good for America," she said.

But is that judgment fair?

Many economists do not think so. It is true that the United States has lost about 4 million manufacturing jobs since 1994, the year NAFTA went into effect and eliminated most hurdles to trade and investment between the United States, Mexico and Canada. Not only are items such as clothing, toys and televisions increasingly made abroad, but so are more complex goods including sophisticated magnets that help steer military smart bombs and radio frequency identification chips embedded in new U.S. passports.

But many economists blame the march of technology and the increasingly dominant manufacturing role of China, not NAFTA, for that shift.

Overall, they said, NAFTA has been a net plus, if a modest one, for the U.S. economy. Even as the number of factory jobs dropped, manufacturing output in the United States was up 58 percent between 1993 and 2006, as U.S. plants produced more goods with fewer workers. Exports are at a record high, and trade among the three NAFTA partners has tripled since 1994. Meanwhile, overall employment in the United States has grown 24 percent and average unemployment is down since NAFTA went into effect. Some cities along the border with Mexico have grown, and farm exports have gone up.

"On balance, researchers have found NAFTA a slight positive for the U.S. as a whole," wrote Anil Kumar, a Federal Reserve Bank of Dallas economist who studied the impact of the agreement.

A Campaign Fault Line

The escalating debate over the future of free-trade agreements promises to be a stark fault line in the campaign. Sen. John McCain (Ariz.), the presumptive Republican nominee for president, is an unabashed supporter of free trade, and the Bush administration is pushing for a free-trade agreement with Colombia.

Even with all their objections to these trade deals, Obama and Clinton have been careful about where and when they have attacked NAFTA. Campaigning in Pennsylvania and earlier in Ohio, both places where trade is blamed by many for job losses, they have pledged to withdraw from the treaty if it is not renegotiated to toughen labor and environmental standards.

But the candidates were mostly silent on the deal in Texas, where economists said it has increased exports not only to Mexico, but also to Canada, Europe, Latin American and Asia.

Some top congressional Democrats have said that rather than renegotiate NAFTA -- which analysts call a difficult proposition likely to produce strong demands from the Canadians and Mexicans, who have their own problems with the treaty -- the candidates should focus on easing the transition of workers into the new economy.

"NAFTA is not the main reason workers today are hurting," House Democratic Caucus Chairman Rahm Emanuel (Ill.) wrote in the Wall Street Journal. Emanuel, who served as the point man for the passage of NAFTA under President Bill Clinton, called for a "new social contract" of improved health care, job training and economic development to gird workers for global competition.

Analysts point out that it is all but impossible to separate the impact of NAFTA from other economic changes that unfolded before and since it was implemented -- including other free-trade deals, increased competition from manufacturers from Eastern Europe to India and, most significantly, China's rise.

Lawrence H. Summers, a Harvard University professor who served as Treasury secretary under President Clinton, said he remains proud to have supported NAFTA. Overall, he said, NAFTA has bolstered the economy and improved national security while easing U.S. problems with illegal immigration.

"The forces that are driving job dislocations are not primarily trade-related," Summers said. "They are technological improvements, increases in the productive capacity of developing nations and technology that enables greater global integration."

Not a Win or a Washout

NAFTA went into effect with lofty promises that it would be an economic boon to North America. By eliminating tariffs among the United States, Mexico and Canada and liberalizing foreign investment in Mexico, proponents said, the continent would end up with lower prices and higher wages. As living standards rose, the economic incentives fueling illegal immigration would evaporate, boosters said, and exports fostered by the world's largest free-trade zone would add 200,000 U.S. jobs. Proponents predicted that the pact would help convert small trade deficits with Mexico and Canada into surpluses.

Fourteen years later, those promises have not panned out. Illegal immigration across the southern border skyrocketed in NAFTA's wake. Meanwhile, average wages stagnated in the United States and Mexico, and the U.S. trade deficits with Canada and Mexico have ballooned.

But if NAFTA has not lived up to the most optimistic hopes, neither has it been the disaster predicated by its most vocal detractors, economists said.

Articulating the fears shared by many union leaders and other NAFTA opponents, H. Ross Perot predicted a "giant sucking sound" of U.S. jobs being pulled south of the border by NAFTA.

Instead, the treaty's impact has been less dramatic. Hundreds of U.S. textile mills closed as Mexican-made apparel was allowed into the country duty-free. Many of those operations have since come under strong pressure from competition in China. Also hurt were workers at manufacturing concerns in the industrial Midwest and elsewhere. Many saw well-paying jobs move out and wages squeezed by the looming threat that their jobs would be exported.

"NAFTA has weakened the leverage of workers and strengthened the clout and bargaining power of multinational corporations," said Thea M. Lee, policy director of the AFL-CIO. "It is hard to separate how much of any impact has been just NAFTA, but it is clear that NAFTA has accelerated trends that were already in place. It has become emblematic of a corporate-centered trade policy."

At the same time, NAFTA has produced winners. Agricultural exports to Mexico have almost tripled, while U.S. firms such as Wal-Mart have secured a profitable foothold in Mexico. And as the industrial Midwest has suffered, other regions have boomed. Fifteen years ago, the border town of Laredo, Tex., was largely impoverished and had a population well under 100,000. Now, with 260,000 residents, the city is the largest inland port in the South.

Overall, the Texas economy has profited from NAFTA, studies have found, with manufacturers taking advantage of cuts in Mexican tariffs to send more electronics, industrial machinery, chemicals and instruments south, according to a 2006 Federal Reserve Bank of Dallas study. The same report found that the export of Texas lumber and furniture declined after NAFTA.

Lost in this discussion is the importance -- and inevitability -- of integration across North America and how important it is to the nation's long-term economic and national security interests, analysts said.

"NAFTA has become this pinata that everybody has put their frustrations into," said Robert A. Pastor, director of the Center for North American Studies at American University. "NAFTA is not the issue. That debate is finished. What the candidates should be debating now is the future of North America. That requires them to look forward, not backwards to NAFTA."

[cbsblogger]

As Lou Dobbs has said..... 35 years of consistently increasing trade deficits means one thing, free trade is not working. Now it is coming home to roost. First off our politicians and our trade organizations don''t believe in free fair trade. Otherwise why would we have been tolerating a long term policy where Columbia can block imports from the USA while the USA policy has been to open our doors to their products.

The absurdity is the same with countries all over the world. It has only been recently that India has allowed Harley Davidson into their country, although they have heavy tarriffs on the motorcycles to discourage theor purchase.

[eyeswideoopen]

The U.S. Bureau of Economic Analysis (BEA) reported the following:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total February exports of $151.4 billion and imports of $213.7 billion resulted in a goods and services deficit of $62.3 billion, up from $59.0 billion in January, revised.


Now.... watch for the boilerplate articles that say, "Economists surprised by increase in trade deficit"

[homespunlady]

ianlou I love the car analogy it''s simple and OH SO TRUE.

The other analogy I can see is American "activists" from all political points of view standing around in a circle trying to attack the "problem" without realizing it''s a hologram controlled from OUTSIDE that circle.

As they accuse and attack across the circle - the ones manipulating from outside are tallying up how much they''ll acquire after the clueless have decimated each other.

DIVIDE AND CONQUER has been a successful TAKEOVER strategy for thousands of years.

DIVERSION, Smoke and Mirrors all work great to HIDE the WEALTH GAP and how FAST it is growing.

There are nations NOW that are facing MASS starvation because of the price manipulations of a tiny few.

It''s not that bad in the US NOW; but then again, maybe it''ll only be a matter of time before it is.

It''s pretty OBVIOUS that this nation is dancing on the edge of disaster.

[b-easy63]

For many reasons, HIllary is the worst choice---loyalties not withstanding--she has no personal convictions. Her goal is to win and to do that--anything can be on the table for sale or barter. She also has no conception of virtue or lies. Some people are inherently good--others are inherently bad--then some people just are--and for those good and bad are simply choices not moral imperatives--they have no conscience or connection so they have to cerebrally decide what is right or wrong. That is a true sociopath. I believe Hillary wants to be good, but she IS a sociopath. As such, the difference between her wants and what she does is her NEEDS. When she has a need--she does not care about right or wrong or what anyone thinks--she is just going to satisfy her need. she is the type who could lick blood off her fingers and not understand the revulsion on anyone''s face. She is dangerous--precisely because her boundaries are not morals or values within herself--and gravitating to her--are people who would take advantage of the carnage she might create. Bill? He is not like Hillary--he just wants to be--Bill has a conscience--but Hillary---she is the real thing.

[ianlou]

Corporation''s who plan to save money by sending their manufacturing jobs overseas, thus eliminating jobs of American consumers, reminds me of someone who plans to save money on car maintenance by eliminating oil changes; It works for a while, then self destruction takes place.

Oops, did I just hear our economy throw a connecting rod?

[b-easy63]

The illegal immigrants--if made legal will result in riots and racial altercations--especially if the economy does not improve. If UHC is enacted--it will hurt us a lot. The revenue is just not there right now nor are the workers to make it so. I believe of the 3 HIllary would be the very worst President. I base that on the way she campaigned and the things she has said and done. I believe McCAin is too violatile--but I worry that Obama is too idealistic and passive to fight when he needs to. I also believe some people will use a new precedent as an excuse to foment chaos.

I think a lot of the dislike of Obama is racial and sour grapes. NO one likes their dream destroyed. No one likes to lose. Some of us handle it better than others. I hope I am wrong about the coming recession being long, and bitter and that NONE of the candidates will hold back NAFTA CAFTA or anything else. They have bought the lies about what is good for a society--it is what happens when policy wonks encounter reality--they rely on pundits and "experts" and eschew common sense.

[b-easy63]

When you are on the outside and watching the game, it often is easy to see where things are headed--I said borrowing from SS would be a disaster, as was globalization without domestic industry safeguards, that illegal amnesty in the 1980s would simply give the green light for even more (we were guaranteed it would NEVER happen), I could see greed superceding the american worker and economy. I said the war in Iraq would be a disaster, that Bush would be corrupt and a dictator, that Pelosi would be ineffective. So here are new predictions: the rebates will NOT work, the war will not end this year and if Hillary is elected not the next year either. I have to couch this--because I do not know who will win between McCain and Obama--it all depends on us. What we really want--and if we can move beyond race and other issues. I think McCain will either stroke or die within the next 4 years. He already shows signs of early dementia (no joke) so watch who his running mate is. I do think the dems will pull together for the most part--but can''t --dare not say how the Independents will go.

[b-easy63]

I knew the we would go to war after 9/11. I was wrong in that I thought it would be Iran, Iraq, Syria and Afghanistan--in short WWIII. I said Bush would lie, abuse power, be corrupt, I was not surprised that he approved of torture and suspect his wiretaps are more for his and his parties benefit than the country''s. I said the Dems were going to win--but that it would be a mixed blessing because they had no ballz or conviction so them standing up would be hard--I was right. I''ve been right a lot on these things--but how hard is it when your opinion is just that? I am by training a microbiologist--by profession, an auditor and investigator--not of finances--but of systems, processes and the people who operate within them. That is not a job where people can like you. Fear. People fear the auditor. So do companies. But it is job where you learn to watch and analyze minutia where, nuance and double entendres are clues--where behavior helps me know where something is going.

Next post

[b-easy63]

In the late 1970s, I saw how the Democrats hamstrung their own President, because he was not the insider choice. I told all who would listen that the Dems would put things in place to make sure that did not happen again. I was right.They put in the SD system to supercede the people.

In the 1980s, I said Reaganomics was a joke, that trickle down economics relied on the rest of the country waiting for the largesse of others to spread--I was right. IN the early 1990s. when Saddam asked about invading Kuwait and our ambassador to Kuwait told him "America has no opinion on that subject" I turned to my husband and said--they are setting him up so they can attack him" I was right.

When Gore ran, I saw how Bush ran and warned they would probably cheat to win--I believe I was right. When Kerry ran, I thought his oratory was maddening and boring as hell--but he did not fight back when swiftboated--I knew he would lose--though I voted for him anyway. see next post

[rowdytexan2]

Obama scorned NAFTA, then went ahead and voted yes on the Peru trade agreement. He is an empty suit, and his words mean nothing. And his minuses on other big issues reflect his incompetence.

Just vote NO to Obama the Scama!

[b-easy63]

The only Western country with unfettered greed and no market protections for local industry appears to be America.

Posted by b-easy63 at 01:03 PM : Apr 10, 2008


and when economic die hard tout the "global economy" what they are saying is continue to let the American market be a free for all so the people in the stock markets can make a killing--but the truth is--sooner or later--all those birds and the shell game come home to roost. If you are still bleating the global market mantra--you are either a true believer or you are benefiting and therefore don''t want the party to end before you get yours. But America is not getting hers now--and not one of the 3 candidates really intends to stop the feeding frenzy--though one might try (Obama) definitely Clinton plans only to get hers--no matter which set of lies she is spouting now.

[b-easy63]

We live in a global economy. All this will do is discourage other countries from trading with us as they turn to Europe.

Posted by mudrose at 10:54 AM : Apr 10, 2008


Europe already has these kind of restrictions. When I was in Paris in 1994, I could buy a rice bowl for about 10.00 US. That same small bowl in almost any store in America would have been about 1.99. The difference was the duty imposed on top of the goods. At the same shop, local pottery for a small dish was 8.99. So either I could opt for the bowl made in China or for the local french pottery. Since I was souvineer shopping--I bought the French one.

The only Western country with unfettered greed and no market protections for local industry appears to be America.

[b-easy63]

And you wonder why businesses leave the U.S. Ask your cronies in the AFL-CIO what happens to them when businesses leave.

Posted by mudrose at 10:31 AM : Apr 10, 2008


the jobs leave, because domestic American companies can''t compete with the companies who already outsource and get to re-import goods back into America without paying duties or paying very little. In such an environment the ones who bailed make more--because they pay less in the 3rd world country and can sell for less here. In Europe, any American made product or any foreign product usually costs 2 to 3 times the price of the same locally produced product. This is to NOT let the outsources have an unfair marketing advantage.

American companies and our government have screwed their own country--they failed to ensure a strong local market and to put restrictions in place to make sure those who import do not have an advantage over similar locally made goods. That is called short term greed--the result is an industry dead--while the new jobs are just service and pay much less---sooner or later this cannot support the existing econo....ooops--guess later is now, HERE. LOL

[b-easy63]

We live in a global economy. All this will do is discourage other countries from trading with us as they turn to Europe.

Posted by mudrose at 10:54 AM : Apr 10, 2008


Get a clue muddy. Those trading deficits MEANS they aren''t really trading with us anyway--it is a matter of us trading with them and them supplying us--but it is NOT a complete 2 way street. There are products America is not ALLOWED to sell in each country and industries they are not allowed to compete with in each country. What? Are you in the import/export business or something? Or is that where your stock is?

[mudrose-2009]

Talk all you want, the bottom line is: If it isn''''t working, change it. If proponents of Free Trade wanted their policies to be permanent, they should have cared a little more about the financial perception, just or not, of the majority of the voting public, the American Middle Class.
Posted by ianlou

We live in a global economy. All this will do is discourage other countries from trading with us as they turn to Europe.

[ianlou]

Talk all you want, the bottom line is: If it isn''t working, change it. If proponents of Free Trade wanted their policies to be permanent, they should have cared a little more about the financial perception, just or not, of the majority of the voting public, the American Middle Class.

[mudrose-2009]

Nice Job Pewlosi on the Columbia Free Trade deal. That means Columbia can import it''s good free and when we export our goods to them it''ll cost us 35% in tariffs. Nice Job. And you wonder why businesses leave the U.S. Ask your cronies in the AFL-CIO what happens to them when businesses leave.

[b-easy63]

Think about it! A 100% tariff on cars would mean that most people in Michigan would drive cars made in Michigan! Or a large tariff on fruit means I could buy oranges that were grown in New Jersey! Write to your governors and tell them that you want to protect jobs from going to other states.

Posted by kenner116 at 12:31 AM : Apr 10, 2008


better to have tariffs on all imported goods into America. After all, what good does it do to limit the options for people in Michigan--if they don''t have JOBS to pay for the michigan stuff?

[b-easy63]

Only sweet, sweet Bolshevism can save us now.
Meet you in the labor camps, halfwits.

Posted by REALITYCALLS at 11:56 PM : Apr 09, 2008


AFTER they vote for Hillary Clinton.

rotflmao

[b-easy63]

At last !!!!!! A media outlet that dared to say the obvious. NAFTA was divised to give Canadians, Mexicans, & Americans broader consumer choices. Pharmaceuticals are much lower in the other countries on the North american continent. CEOs and Boards of Directors are who decided to outsource jobs to Canada/Mexico. I''''m betting most of them are GOP.

Posted by TiredoftheBS at 12:27 AM : Apr 10, 2008


but those products and services are NOT lower in the USA-so there were advantages to NAFTA....just not for the states. Even though we are the most consumer driven market on the planet and are exploited by the very companies that left us.