With the Republicans and the Obama administration attempting to rush headlong into a new trade agreement with Korea, and possibly also with Panama and Colombia as well, it is incumbent on Americans to apply a bit of empiricism. How have our past trade agreements worked out? Above all, how's the grand-daddy of them all, NAFTA, doing?
Unfortunately, NAFTA is a veritable case study in failure.
This is all the more damning because this treaty was created, and is administered, by the very Washington elite that is loudest in proclaiming free trade's virtues. So there is no room for excuses about incompetent implementation, the standard alibi for free trade's failures in the developing world. So if free trade was going to work anywhere, it should have been here.
Instead, what happened? NAFTA was sold as a policy that would reduce America's trade deficit. But our trade balance actually worsened against both Canada and Mexico.
For the four years prior to NAFTA's implementation in 1994, America's annual deficit with Canada averaged a modest $8.1 billion. Twelve years later, it was up to $71 billion.
Our trade with Mexico showed a $1.6 billion surplus in 1993 but by 2010, our deficit had reached $61.6 billion.
Eccentric billionaire and 1992 presidential candidate H. Ross Perot was roundly mocked for predicting a "giant sucking sound" of jobs going to Mexico if NAFTA passed. But he has been vindicated. The Department of Labor has estimated that NAFTA cost America 525,000 jobs between 1994 and 2002. According to the more aggressive Economic Policy Institute:
NAFTA has eliminated some 766,000 job opportunities--primarily for non-college-educated workers in manufacturing. Contrary to what the American promoters of NAFTA promised U.S. workers, the agreement did not result in an increased trade surplus with Mexico, but the reverse. As manufacturing jobs disappeared, workers were down-scaled to lower-paying, less-secure services jobs. Within manufacturing, the threat of employers to move production to Mexico proved a powerful weapon for undercutting workers' bargaining power.
The idea of Mexico as a vast export market for American products is a sad joke; Mexicans are simply too poor. In the 1997 words of Business Mexico, a pro-NAFTA publication of the American Chamber of Commerce of Mexico:
The reality is that only between 10 and 20 percent of the population are really considered consumers. The extreme unequal distribution of wealth has created a distorted market, the economy is hamstrung by a work force with a poor level of education, and a sizable chunk of the gross domestic product in devoted to exports rather than production for home consumption.
According to official figures that year, fewer than 18 million Mexicans made more than 5,000 pesos a month. And even that was only about $625: roughly half the U.S. poverty line for a family of four. This has not improved much since, so, as Paul Krugman has pointed out, "Mexico's economy is so small--its GDP is less than four percent that of the United States--that for the foreseeable future it will be neither a major supplier nor a major market."
But if NAFTA wasn't a plausible economic bonanza for the U.S. and America's establishment knew it, then what was going on? Krugman again supplies an answer, writing in Foreign Affairs that, "For the United States, NAFTA is essentially a foreign policy rather than an economic issue." The real agenda was to keep people like President Carlos Salinas, friendly with powerful interests in the U.S., in power in Mexico City.
Bottom line? Free trade was pushed not because of any sincerely anticipated economic benefits, but to serve an extraneous foreign policy agenda. To his credit, Krugman later admitted the utter chicanery of it all, writing in The New Democrat in 1996 that:
The agreement was sold under false pretences. Over the protests of most economists, the Clinton Administration chose to promote NAFTA as a jobs-creation program. Based on little more than guesswork, a few economists argued that NAFTA would boost our trade surplus with Mexico, and thus produce a net gain in jobs. With utterly spurious precision, the administration settled on a figure of 200,000 jobs created--and this became the core of the NAFTA sales pitch.
NAFTA was sold in Mexico as Mexico's ticket to the big time. Mexicans were told they were choosing between gradually converging with America's advanced economy and regressing to the status of a backwater like neighboring Guatemala.
What actually happened? In reality, the income gap between the United States and Mexico grew (by over 10 percent) in the first decade of the agreement. This doesn't mean America boomed; we didn't. But Mexico slumped terribly.
In NAFTA's first decade, the Mexican economy averaged 1.8 percent real growth per capita. By contrast, under the protectionist economic policies of 1948-73, Mexico had averaged 3.2 percent growth.
Because Mexico's labor force grows by a million people a year, job creation must get ahead of this curve in order to raise wages; this is simply not happening. Mexican workers can often be hired for less than the taxes on American workers; the average maquiladora wage is $1.82/hr. The maquiladora sector is deliberately isolated from the rest of the Mexican economy and contributes little to it. Workers' rights, wages, and benefits are deliberately suppressed. Environmental laws are frequently just ignored.
Mexican agriculture hasn't benefited either: NAFTA turned Mexico from a food exporter to a food importer overnight and over a million farm jobs were wiped out by cheap American food exports, massively subsidized by our various farm programs.
Promoters of NAFTA have tried to cover up its problems by using inappropriate yardsticks of success. For example, they have claimed that the expansion of total trade among the three nations vindicates the pact. But this expansion has been due to a growing American deficit. Because a growing deficit means, by definition, that our imports have been growing faster than our exports, there is no way that economic growth per se will ever solve the problem.
Congress was right to reject NAFTA initially, which never enjoyed sincere majority support in either the House or the Senate and was bought with sheer patronage by Bill Clinton.
To be fair, NAFTA is not the only thing that has been wrong with the Mexican economy in recent decades. But NAFTA was the capstone to a series of dubious free-market economic experiments carried out there since the early 1980s. Between 1990 and 1999, Mexican manufacturing wages fell 21 percent.
It gets worse. Despite the fact that, compared to the U.S., Mexico is a cheap-labor economy, there are plenty of nations with even lower average wages. For example, Mexico is now losing manufacturing jobs to China in such areas as computer parts, electrical components, toys, textiles, sporting goods, and shoes: 200,000 in the first two years of the millennium alone.
Mexico's trade deficit against the rest of the world has actually worsened since NAFTA was signed. In the words of liberal commentator William Greider, "The Mexican maquiladora cities thought they were going to become the next South Korea, but instead they may be the next Detroit."
NAFTA is not America's only free trade agreement, of course. But our other agreements tell similar tales. We have signed 11 since 2000: with Australia, Bahrain, Chile, Colombia, Jordan, Korea, Oman, Morocco, Singapore, Panama, and Peru. (El Salvador, Nicaragua, Honduras, Guatemala, and the Dominican Republic were lumped together in the Central America Free Trade Agreement or CAFTA.) Every agreement but one has coincided with greater American deficits. The only exception is Singapore, where our existing surplus increased somewhat. But Singapore is tiny, a mere city-state.
Nevertheless, our government pushes for more. As of 2011, country agreements with Colombia, South Korea, Oman and Panama were pending ratification, and the U.S. was in stalled negotiations with Malaysia, Thailand and the United Arab Emirates. Next on the list are reportedly Algeria, Egypt, Tunisia, Saudi Arabia and Qatar.
In December 2009, the Obama administration announced its intention to eventually join the existing Trans-Pacific Partnership and elevate it into a full-blown free trade area comprising the U.S. plus Singapore, Chile, New Zealand, Brunei, Australia, Peru, and Vietnam. In December 2010, the administration reached a slightly-improved deal with South Korea and announced it would push for Congressional ratification.
When will we ever learn?
Follow Ian Fletcher on Twitter: www.twitter.com/IanFletcher
I can't find it here: http://thomas.loc.gov/home/rollcallvotes.html
I bet at least 2/3rds of Democrats in Congress will vote yay. Both parties conspire on the important issues and vote as one.
I trust Ian Fletcher's views on trade issues and both views on the Korea FTA can't be true.
Well he did the wrong thing.
As you will see,wages go down tremendously with just china and india in the picture.
Do the math yourself and see how much further the wages here in America will go down and ask yourself the question of "Do I really want to leave this kind of future for my children?".
http://keepamericaatwork.com/?p=57548
Mexico has hurt us but to a lesser extent, at least when products were being made in Mexico we still were providing many of the base materials for those products; now production is largely in Asia our lower level supply chain companies have also been badly damaged.
I think we certainly need to be careful about where we expand trade to, but FTAs take years-decades to sign and ultimately our greatest danger comes from ignoring our current losses to places outside our FTAs.
This is why it is clear that our govt doesn't work for we the people.....we the people have become lackeys to a corrupted govt that passes these agreements that undermine Americans hope for jobs and a decent wages.....it is nothing short of economic treason.....
all this talk about global economy and emerging markets is a spin the global elites put on it ---as if it happened quite naturally ---rather than being the sinsiter plot cooked up by corrupted US Govt and excessively grredy corporations to use US tax dollars to destroy the American economy for all but the top 2%.......in the long run it is their plan to gut America down to a third world economy...Obama will finish the job for them within the next two years with new agreements....
That said, I will agree that NAFTA has had negative unintended consequences; there is a good argument for the case that it has made the drug war in Mexico much worse, for example.
I will also agree that freer trade is not always better: he took a lot of criticism for it, but Keynes was right to bring attention back to the Mercantilists, saying that they were not completely wrong, nor did classical Ricardian economic theory really refute them.
See http://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter23.html for what Keynes had to say on this. Keynes is still the greatest genius of 20th century economics.
http://www.citizen.org/Page.aspx?pid=4398
Export Stats Report
"NEW! Report: Export Growth Slows Under Unfair Trade Pacts
"Lies, Damn Lies, and Export Statistics: How Corporate Lobbyists Distort the Record of Flawed Trade Deals"
This report, written by Public Citizen's Global Trade Watch, reveals that the growth of U.S. exports to countries with which the United States does not have Free Trade Agreements (FTA) has outpaced the growth of exports to the 17 U.S. FTA partners. This analysis of government trade data finds that FTAs have actually imposed an export "penalty," including in the service sector. The report also exposes the inconsistent methodology underlying reports by the U.S. Chamber of Commerce and the National Association of Manufacturers to show how the corporate lobby has produced data to support their demand for more FTAs.
Access The Full report here"
Click on "Access The Full report here" to see the full report.
http://citizen.typepad.com/eyesontrade/2011/03/debunked-fta-export-claims-continue-to-pop-up.html
Eyes on Trade: Debunked FTA Export Claims Continue to Pop Up
"In his announcement of the hearing on the Colombia FTA that occurred yesterday, Rep. Kevin Brady alleged that "Since 2000, U.S. exports to the 13 countries with which the United States has implemented trade agreements have grown almost twice as fast as our worldwide exports," but a fair accounting of the export record does not support this claim.
In our September report about the dismal record of U.S. exports to our FTA partners, Lies, Damn Lies, and Export Statistics, we debunked similar claims floated by the Chamber of Commerce and the U.S. Trade Representative. Apparently fair trade opponents think this claim is just too good to let facts get in the way, because it has surfaced again in Rep. Brady's statement.
It seems Rep. Brady is engaging in the same apples-to-oranges comparison trick that we highlighted in our September report (see page 18). If you take the unweighted average growth of exports to FTA partners and compare it to the weighted average growth of exports to the world over 2000-2010, you'll get an FTA growth rate almost twice as high as the growth rate of exports to the world.* Comparing weighted and unweighted averages makes FTAs seem great for U.S. exports, but it's a false comparison..."
But yet the Sheeple keep re-electing the the same bureaucrats over and over again....... yet wonder why nothing changes..............
Ballot access laws have been rigged by the two-party duopoly to make it almost impossible for independent or third-party candidates to get on the ballots:
http://www.thelibertyvoice.com/ralph-nader-ron-paul-agree-ballot-access-laws-are-rigged-against-independent-third-party-candidates
Ralph Nader & Ron Paul Agree: Ballot Access Laws are Rigged Against Independent & Third Party Candidates | The Liberty Voice
http://www.freeandequal.org/videos/free-equal-ballot-access-movie/
Free & Equal Ballot Access Movie
http://rangevoting.org/Strangle.html
RangeVoting.org - Stranglehold of 2-party domination
There was more turnover in the Soviet Politburo than in the U.S. Congress
ouch
bubble.
Funny though your mention of Clinton, I seem to remember him being a bit player within this
regard. Wasn't old George H. W. the push & thrust?
Anyway, if free trade is the demon then we must have some pretty big 'secret' free trade deals
with China, Japan, Korea, India, etc. or, perhaps something much more sinister at work
internal to America..... then again, it's much easier to blame Canada & Mexico.
I am not 100% sure what you are assuming, but you do seem tobe assuming, among other things, that free trade really does prevail. But it need not: the unions are not being complete Luddites when they revive Mercantilist arguments, even Keynes revived some of them.
http://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter23.html contains a still very valid assessment of the triumphs and failures of both the Mercantilist School and the Free Trade School.
http://www.youtube.com/watch?v=Rkgx1C_S6ls
YouTube - Giant Sucking Sound - Ross Perot 1992 Presidential Debate.flv
Perot said the U.S. and Mexican wages would equalize, after the U.S. economy was destroyed.
Perot also mentioned the revolving door between Congress and lobbyists:
A recent example is Liz Fowler:
1. VP Wellpoint
2. Member of Sen Baucus' staff where she helped draft the HCR bill
3. Joined the Obama administration.
Few CEOs have the courage Perot displayed when he went into Iran to rescue his employees...
http://feraljundi.com/2010/07/21/history-ross-perots-private-rescue-of-eds-employees-in-iran-1978/
History: Ross Perot's Private Rescue Of EDS Employees In Iran, 1978
http://fdlaction.firedoglake.com/2010/03/29/baucus-thanks-wellpoint-vp-liz-fowler-for-writing-health-care-bill/
Baucus Thanks Wellpoint VP Liz Fowler for Writing Health Care Bill | FDL Action
"...wish to single out one person, and that one person is sitting next to me. Her name is Liz Fowler. Liz Fowler is my chief health counsel. Liz Fowler has put my health care team together. Liz Fowler worked for me many years ago, left for the private sector, and then came back when she realized she could be there at the creation of health care reform because she wanted that to be, in a certain sense, her profession lifetime goal. She put together the White Paper last November–2008–the 87-page document which became the basis, the foundation, the blueprint from which almost all health care measures in all bills on both sides of the aisle came. She is an amazing person. She is a lawyer; she is a Ph.D. She is just so decent. She is always smiling, she is always working, always available to help any Senator, any staff. I thank Liz from the bottom of my heart. In many ways, she typifies, she represents all of the people who have worked so hard to make
this bill such a great accomplishment..."