International Trade

NAFTA Is All about the States

There is no better day to underscore the North Atlantic Free Trade Agreement’s (NAFTA’s) importance to the nation and to the states than Wednesday, the misguided National Day of Action to replace the North Atlantic Free Trade Agreement (NAFTA). Despite its imperfections the states have been notable NAFTA beneficiaries and have the most to lose if the Agreement falters. A recently published report Which States Would Be Hit Hardest by Withdrawing from NAFTA observes that the industrial Midwestern states will be particularly hard hit without NAFTA. Michigan, Wisconsin, Missouri, Ohio and Indiana are among the top 10 losers if NAFTA is dissolved. Millions of American jobs are supported by NAFTA, and all but one U.S. state count Canada or Mexico as a top three trading partner. While ready for modernization, NAFTA has been good for the nation and good for the states. Trilateral talks began this year to update the framework. Negotiations have hit unexpected obstacles and are more contentious than anticipated, signaling that this framework with two of our most important trading partners might be in jeopardy.

Conventional wisdom holds that NAFTA and FTAs, in general, threaten American jobs however the facts contradict that popular perception. Far from destroying jobs, according to an Atlantic Council report entitled What If NAFTA Ended: The Imperative of a Successful Renegotiation,“In the four years following NAFTA’s implementation, the United States added 800,000 manufacturing jobs,” contrasted with 2 million manufacturing jobs lost between 1980 and 1993 – the years before NAFTA’s adoption. While worker dislocation is real, technological innovation causes far more of it with trade being responsible for modest job creation. FTA partners serve as the destination countries for a disproportionate share of American exports, and imports help keep prices low on the goods many American families use every day. The answer to worker dislocation is not isolationism and protectionism but public-private partnership educational programs that train American workers for 21st-century jobs.

NAFTA is sorely in need of a facelift – an ALEC press release announcing the adoption of model policy calling for NAFTA modernization. The administration’s inflexible posturing sends a message to Canada and Mexico that the U.S. views withdrawal from the Agreement as a viable option. Ensuring that updates to the FTA benefit the U.S. is important, however, as Jyrki Katainen, the EU Commission’s Vice President for Jobs, Growth, Investment and Competitiveness remarked recently, “You cannot get bilateral agreements if it’s only useful for your country, but not benefiting the other party.” Katainen’s observation is particularly apt because Europe has been one of the main beneficiaries of global impatience with the United States’ erratic and counterproductive negotiating posture on trade. In contrast, the EU is increasingly perceived as a more desirable economic partner.

As severe as the economic blow of NAFTA withdrawal will be to the United States, there will be strategic consequences as well which are also highlighted in What If NAFTA Ended. As this white paper emphasizes, “trade agreements are strategic accords.” NAFTA has fostered trilateral cooperation between the U.S. and it’s northern and southern neighbors that include intelligence sharing, law enforcement and counter-terror cooperation and collaboration on drug interdiction serve to stop threats before they reach our borders. There is significant military cooperation between the United States, Mexico and Canada and the Agreement has encouraged greater political stability in Mexico.

After creating the structures that underpin global commerce in the second half of the last century, the United States has relegated itself to the sidelines as our economic partners negotiate and ratify free trade frameworks that do not include America. Upon U.S. withdrawal from TPP, the 11 other negotiating nations formed TPP11 and are at the midpoint of negotiating a framework which mirrors the original TPP in many respects except that it has eliminated many of the provisions that American industries fought so hard to include. This is to be expected as the U.S. is not a party to TPP11. Canada and Mexico already have plans to modernize NAFTA within the TPP11 Framework if current talks with the United States fail.

America is an exceptional nation with the largest economy in the world. However, other nations’ economies are growing, shrinking America’s share of world GDP. In 1960 the U.S. enjoyed 40 percent of the world’s GDP, a figure which fell to 22 percent as recently as 2014. This latest mercantilist streak along with a mystifying reliance on trade deficits as the appropriate way to measure an economic framework’s value makes us a less attractive economic partner.

Modernize but do not dissolve NAFTA, the states are counting on it.

In Depth: International Trade

International trade creates and supports millions of American jobs that offer higher than average wages and drive economic growth. As a testament to the strength of American entrepreneurship, the vast majority of U.S. exporters are not large corporations but small to medium-sized enterprises. Those that doubt the power of global…

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