What Do We Do about NAFTA?

Stimson Spotlight

What Do We Do about NAFTA?

By William Reinsch

A few weeks ago someone asked me to opine, in 200 words or less, whether NAFTA had “worked.” I pointed out that that question has been debated for the past 23 years, and whole books have been written about it. But this is 2017, and detailed analysis is out and tweets are in. Two hundred words is better than 140 characters, but not by much. So, I took a stab at it and, in line with my long-standing philosophy that the truth is almost always somewhere in the middle, I concluded that NAFTA had helped some people and hurt others, that it had been net positive for all three countries, but probably the most positive for Mexico and the least positive for the U.S. (No one ever said all agreements have to benefit all parties equally).

What I should also have said is that trade agreements are not static, and that the winners in the 1990s are not necessarily the same winners in the 20-teens. Some have not changed. It appears U.S. farmers have been big winners almost from the beginning, and they continue to do very well, particularly exporting to Mexico. Of course there are some cranky farmers out there — the sugar and tomato growers and some of the beef people who want to bring back COOL — but on the whole U.S. agriculture has done just fine. Manufacturing is more of a mixed bag, but most sectors, notably automobiles, which is probably the biggest one, will say they’re satisfied with the status quo. This is largely because they looked at the rules and then evolved their supply chains in ways that minimize costs consistent with those rules. Understandably, they have now figured out that if the rules change they will have to start over and reconstruct their supply chains. That will be time-consuming and expensive, and the outcome uncertain. As is usual with companies, they prefer the known to the unknown.

The self-identifying losers appear to be organized labor and NGOs that claim to speak for ‘the people’ as opposed to ‘the big corporations’ (Little companies apparently get a free ride).  Organized labor has a point, up to a point. To the extent plants moved to Mexico, the jobs lost were primarily union jobs, and the argument that the plants moved in search of lower wage workers is not wrong, although it tells only part of the story. Of course, the dead end solution at this point would be to pull out entirely, which would disrupt thousands of supply lines and make everybody worse off. The smarter solution, which Sandy Levin (D-MI) and others have pushed is stronger labor and environment language and better enforcement of same, which would simultaneously leave Mexican workers better off and narrow the wage gap between the two countries. That would be a win-win outcome rather than the lose-lose outcome of bailing out of the agreement.

NGOs are a different story. It’s never quite clear who ‘the people’ they represent are, aside from themselves, but they do make a lot of noise so attention must be paid. I once debated someone from this group, and she began with an argument that has always stuck with me: the issue is not about trade, it’s about power. It’s about the little guy being either ignored or taken advantage of by politicians and Washington elites that care only about the big corporations that support them. This was very much a theme in the last election, and I have written in the past about trade becoming a scapegoat for a host of other issues. Now that we are talking about an actual negotiation rather than theory, the scapegoating becomes clearer because there is precious little NAFTA can do to actually solve the alienation problem, particularly when we have a president determined to regularly remind everybody of it. 

NGOs do have demands: process change — more transparency, more consultation, elimination of investor-state dispute settlement provisions (ISDS, and a lot of the same things their labor and environmentalist colleagues want). The dilemma all these groups face is that the price of influence is always the possibility of support. If they are prepared to say, “Give me X, Y, and Z, and I’ll support NAFTA,” then negotiators can take them seriously and do business with them. So far they have not been willing to do that. Occasionally, someone goes on defense and argues that there are trade agreements they “could” support, but those remain largely undefined and decoupled from any actual negotiation. Business, in contrast, figured out the game a long time ago and has always been prepared to provide support if the price is right. That may be why the trade opponents claim the deck is stacked against them, but the truth is they simply have not played their cards as well. 

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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 credit Canadian Pacific