A Modern Fable for NAFTA

Stimson Spotlight

A Modern Fable for NAFTA

By William Reinsch

Once upon a time there was an ant and a grasshopper, and they were friends. It was summer, and the grasshopper was having a grand time jumping and playing with his other friends while the ant was very busy storing up food and fuel for the winter. Periodically, the ant would tell the grasshopper he really needed to spend some time preparing for winter, but the grasshopper would always say he would do it tomorrow.

Eventually, winter arrived and found the ant snug, comfy, and well fed in his home. Soon, as the weather got colder, the grasshopper found himself knocking on the ant’s door. “Oh, ant,” he said, “it’s cold, and I have no food and no shelter. May I come in, get warm and share some of your food?” The ant replied by reminding him what he had been saying all summer — that the grasshopper needed to plan for his own future.

In response, the grasshopper said, “You’re right. I made a terrible mistake, and next summer I’ll do a better job, but right now I’m freezing and starving and need help. Is there anything you can do?” And the ant said, “Well, there is one thing I can think of.” The grasshopper got very excited and said, “That’s wonderful! What is it?” And the ant said, “Well, you could become an ant.”

That puzzled the grasshopper, so he said, “That sounds like a good idea, but how do I do that?” And the ant said, “I have no idea. That’s Implementation. I’m in Policy Planning.” And so the ant, at least, lived happily ever after developing new policies, while the grasshopper was left to his own devices.

As you might expect, there is a moral to this story — several, in fact. The most obvious is the frequent disconnect between policy and reality. Conceiving policies that sound good — at least to some people — turns out to be a lot easier than coming up with ones that will actually work. We have seen this dilemma unfold in the ongoing NAFTA negotiations, which during the fourth round turned the corner from low-brow comedy to horror movie. It appears our policy is to reduce bilateral trade deficits and thereby create jobs and growth. Our implementation plan is to further restrict trade and make it more difficult for American businesses to invest and locate in Mexico and Canada. The fact that the latter has nothing to do with the former and cannot, in any event, actually be implemented, seems to have escaped the administration’s notice, although it is beginning to become very apparent that the Canadians and Mexicans oppose what we want to do and are not going to roll over because we are unhappy.

The fundamental problem is that the administration is rejecting the concept of an integrated North American market in favor of a policy that focuses only on what’s good for the United States and aims to achieve that by taking things away from the other two. This is the essence of 18th century mercantilist thinking — a zero-sum economic world where our gain inevitably means someone else’s loss. Colbert (Jean-Baptiste, not Stephen) and Louis XIV would be proud. Meanwhile Adam Smith and David Ricardo are rolling over in their graves because the president and Ambassador Lighthizer have failed to grasp the fundamental principle of comparative advantage and the idea that an integrated market and more trade can be good for everybody — win-win-win. Until they realize that, the negotiations cannot possibly have a happy ending.

Another moral is the difficulty of unraveling the present, no matter how good an idea that might be. It’s easy to resolve not to do something again but much harder to unwind what you have already done. In NAFTA we have a 23 year experiment in market integration. Even if you think that was a mistake, which is distinctly a minority view, undoing it is a lot more complicated than just promising not to do it again. Many lives and jobs will be disrupted. Of course there is eventually a new equilibrium, just as Keynes said in the long run we are all dead, but that hardly justifies creating a lot of unnecessary pain on the way there.

Finally, there is an implicit moral here about good works. We don’t really know what happened to the grasshopper, but the ant certainly had an opportunity to do a good deed and take him in. To the extent NAFTA has done more for Mexico than for us — we have done something good, which also happened to be good for us as well in terms of increased trade and jobs and fewer Mexicans crossing the border illegally. The administration’s proposals, not for the first time, appear designed to take from the poor and give to the rich which is hardly something that dignifies us as a country or a people.

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William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative

 

Photo: U.S. Department of State