Swap Meat

Friends and critics miss the point on NAFTA.

Brian Doherty from the October 1997 issue

In early July, the Clinton adminstration issued its first, mostly positive, official assessment of NAFTA's impact. In a sign of the lines along which the Democratic Party is apt to split in a Gore/Gephardt dust-up in 2000, House Minority Leader Richard Gephardt (Mo.) insisted to The New York Times that NAFTA "hasn't measured up" and that "[b]efore we proceed with further trade negotiations we need to ensure that trade results in real progress for the broadest cross section of people."

This debate is more than just another internecine Democratic Party fight. Success for Gephardt's brand of frightened "there is power in a union" paleoliberalism would have implications for the world's economic future that go beyond the humble realities of NAFTA's actual impact so far. NAFTA hasn't even been around for four whole years yet. The U.S. economy is influenced by forces and decisions more important than the modest tariff reductions (and concomitant bureaucratic complications) that define NAFTA.

The original NAFTA debate rang noisily with both despairing cries and overconfident brags about jobs. So of course the Clinton administration's assessment featured the usual imprecise macroeconomic guesses. The official White House line is that 90,000 to 160,000 new jobs have been created as a result of NAFTA, while maybe 32,000 to 100,000 have been lost. The net, then, is anywhere from -10,000 to 128,000. Whatever you say, Mr. President. The Labor Department program set up to help those who allegedly lost their jobs because of NAFTA counts 125,000 eligible people. But these include many whose plight's connection with NAFTA is tenuous to nonexistent, as The Wall Street Journal showed in an excellent front-page story on June 30.

The fact is, no one really knows what NAFTA's impact on jobs has been. NAFTA's friends and foes both focus their gaze in the wrong place. Many of the alleged horrors that NAFTA naysayers predicted have sure enough come to pass. NAFTA has not directly led to an unprecedented flood of export-related jobs. The U.S. trade deficit with Mexico has grown to $16 billion, despite 36 percent export growth, because imports from Mexico increased almost twice as much.

Such is international trade. Those overarching macro numbers hide more than they reveal, however. They hide the thousands of individual decisions to buy and sell that, when added together, make up trade deficit figures. It's easy to scare Americans with talk of ballooning trade deficits. It's harder to upset them by complaining that they are now able to buy cheaper tomatoes and cars (which, even if assembled in Mexico, usually consist
of American-made parts). Those macro numbers also disguise what a tiny effect any trade with Mexico has on the American economy: Total merchandise trade with Mexico adds up to just 0.8 percent of the U.S. gross domestic product.

But that tiny effect masks what is really important about the principle of freer international trade. Such trade encourages liberalization; it's harder to attract foreign capital with confiscatory taxation or nationalization hanging over investors' heads. And rules-based deals like NAFTA help discourage governments from violating free trade principles whenever native special interests howl. Counting jobs gained or lost in the short term isn't what the spirit of free trade deals should be about. What's important is the long-term freedom for people (and their money and property) to find where they can best add to everyone's wealth. And that spirit can't have its best results without spreading. Some of the increase in trade with Mexico and Canada apparently has been redirected from elsewhere. The distorting effects of limited trade pacts fade as such deals spread.

What also can be expected to fade is the Mexican misery that made some critics scoff about the possibilities of NAFTA, as in Ross Perot's insulting comments about trading with a nation of people living in boxes. Much post-NAFTA commentary has made hay of the unpleasant (to American sensibilities) conditions in which many Mexicans work and live. Mexico has maquiladoras with horrible pollution, shantytowns with appalling
levels of violent crime, wages that most Americans wouldn't even sniff at. In a December 1996 article on grim conditions in the Mexican border town of Juarez, Harper's Magazine claimed Juarez's troubles were "the violent realities of free trade"--as if crime and poverty first struck Mexico like plagues from the north in 1994 when NAFTA went into effect. To utopian critics, such shocking details show both why NAFTA is a failure and why it shouldn't even have been attempted: No fair and honorable trade is possible between rich and poor.

Of course, in trade each side must have something the other wants, and in some cases lower wages are one of those things. (Then again, low wages are not the be-all and end-all for industry--we don't see capital and equipment rushing en masse to Zaire.) Those who weep over Mexican suffering can't blame NAFTA for preventing a utopia of universal wealth, and they can't maintain that cutting poor countries off from world capital and trade would do them any good. Poverty and its handmaidens cannot be an excuse for avoiding the changes that have created what wealth the world does enjoy: the extension of industrialization and the division of labor in a legal environment that mostly respects private property and mutually agreed-upon trade.

As President Clinton tries to get fast-track authority for extending NAFTA-like deals across Latin America, it is probably too much to hope that he can resist the temptation to make irrelevant promises of outrageous good fortune for America's working people. Freer trade benefits the great majority in the long run, in addition to satisfying simple principles of justice. The United States could reap many of
the benefits of free trade unilaterally if it wished. But pacts make free trade more politically palatable and help lock in commitments that might fade when freer trade doesn't instantly generate impressive macroeconomic stats to bash Gephardt with in 2000, or even creates specific problems for specific people. But to choke free trade condemns the world to stagnation. In the long run it did, and will continue to, create a world of unprecedented wealth.