Ending NAFTA Would Decimate American Jobs
Economist Roberto Salinas-León on how free trade fuels prosperity on both sides of the border.
"The intellectual backwardness of many of Trump's trade advisors contrasts dramatically with some of the very good advice he's gotten in terms of deregulation," says Roberto Salinas-León, president of the Mexico Business Forum and adjunct scholar at the CATO Institute. "Talking about your second most important trading partner in that [derogatory] vein—that's not the 'art of the deal.' That's just very bad business."
Salinas-León, an expert on trade and monetary policy, says that if Trump ends the North American Free Trade Agreement (NAFTA), it would decimate jobs on both sides of the border.
"Does Indiana depend on jobs because of its trade with Mexico? Does Ohio? Texas? You want to shut down NAFTA? That turns Texas into a Democratic state overnight."
Reason's Nick Gillespie sat down with Salinas-León at Freedom Fest in Las Vegas to discuss NAFTA's economic impact, his heated confrontation with Trump at Freedom Fest 2015, and how the president's anti-Mexico rhetoric propelled leftist presidential candidate Andrés Manuel López Obrador ("a rabid, primitive, vitriolic, populist") to the top of the polls.
Interview by Nick Gillespie. Edited by Alexis Garcia. Camera by Justin Monticello and Meredith Bragg.
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This is a rush transcript. Check all quotes against the audio for accuracy.
Gillespie: Let's talk about NAFTA first and your role in it. Is NAFTA a good thing or a bad thing for Mexico, Canada and the US? It's getting a lot of heat lately.
Salinas-León: In the early 1990s, we thought, "Well, wow! Mexico's already a story of trade liberalization. We're exporting 35 billion dollars a year worth of products and so on." Today that number is 365 billions, so from a trade perspective, and this is a trade agreement, from a trade perspective, I don't think there's any question that NAFTA has been a success in the sale side. And then you go to the purchase side, in other words, imports, and you find that you're also importing a vast amount. Guess where those imports come from? In about 80 percent, the United States.
Gillespie: Yeah, exactly.
Salinas-León: So those in Indiana depend … I mean, speaking of Mike Pence, does Indiana depend on jobs because of its trade with Mexico? Does Ohio? Texas? You want to shut down NAFTA? That turns Texas into a Democratic state overnight.
Gillespie: Where do you think the animus against NAFTA, particularly in the United States, and I mean, this is something that Donald Trump ran on. It's also something that Bernie Sanders brought up a lot, the idea that somehow free trade agreements suck jobs out of America and they put them in third-world countries, which due to a lot of economic ignorance, often times they're talking about Mexico as a third-world country, as well. Where does the resentment of something like that come from?
Salinas-León: I think that was one of the great lessons of the Trump campaign, the Bernie Sanders campaign. It's not something that discriminates between Republicans and Democrats or between the right or the left or whatever. What you found out is that there is anger because there's displacement. There is job displacement, and that's a very serious concern. But are we going to address it by closing our economies? By building walls? I mean, wasn't another famous Republican the one who said, "Tear down this wall." The same one that said, "We will always keep our doors open in the shiny city on the hill no matter how many walls it may have." I think those principles have to be kept in mind, but also, to be very serious about trying to alleviate the disruption and the displacement that may come in this era of globalization for those that have lost their jobs.
Gillespie: So, yeah, you mentioned Indiana and Ohio. You can throw Michigan and Wisconsin states-
Gillespie: ..they were very important for Donald Trump to win. It's clear that the-
Gillespie: …NAFTA message resonated there. How do you help workers who may have been displaced by the idea that certain types of industrial jobs go elsewhere.
Salinas-León: Oh my goodness! That is a hard question. I think you would have to come in three tranches, but this is something purely speculative. The first is that you need some type of, hopefully, market-oriented job loss insurance, that may be funded through the tremendous economic exchange that is done on a trilateral basis, only on a temporary point of view, in other words, as just a measure to alleviate the immediate pain. But then you need something that's more structured, and that would have to be based on retraining, on education and on trilateral efforts, hopefully, more private-oriented than public-oriented, to try and find new workspaces for such people. And I think this is something that independently of NAFTA is an issue in the United States in the next 10 years with the tremendous advances of technologies, because those job displacements owe a lot more to technological disruption and progress than they due to trade.
Gillespie: Right, yeah, I mean-
Salinas-León: And third world, by the way, the idea that low wages are sucking … It's more affordable and more productive worker units. You go down to Hermosillo, Sonora, where they have the Ford plant there, which has suspended production on one of its Ford models, but otherwise Haiti would be the richest country in Latin America. Otherwise, many of these sub-Saharan countries would be by far the most prosperous ones.
Gillespie: How does the Mexican business community view somebody like Donald Trump? I mean, are they worried? Not just because of his rhetoric, but that he'll do policies that actually do real damage to the ability for the Mexican economy, for the North American economy to grow?
Salinas-León: Well, at first, there was a significant worry. We have to understand that NAFTA for Mexico was much more than a trade and an investment agreement. It was importing the credibility of US institutions. If you do investment on a North American level, chances of a future government in Mexico trying to derail that, as it happened to us before, are going to be a lot harder. So that straitjacket effect perhaps is not golden, but it certainly a silver straitjacket. Somebody may want to re-nationalize, re-expropriate the banks or they may want to do all kinds of horrible things in the populist tradition that has characterized many Latin American countries.
NAFTA was a great step forward in trying to, not preclude that completely, but significantly lessen the probability of a future change, and that's what led to a great deal of investment coming into Mexico. It was that credibility that was imported. In that sense, for Mexico the idea of abandoning NAFTA … We'll still trade with the United States at an enormous level. Mexico today is the number one supplier of auto parts in the United States, the number two supplier of automobiles in the United States. NFL helmets are produced in Mexico, assembled in Mexico.
Gillespie: Pretty sure avocados. You guys have cornered the American market.
Salinas-León: The greatest lie, fake news … Can't even call them that. It's just an outright lie. The facts speak very differently about the effect of NAFTA on Mexican agriculture, on the country. It's exploded. It's exploded, and I might still have friends and many people that … I don't know this from reading a statistic, I know this from actually visiting the different farms, whether it's tomato … You know, many of the tomatoes we eat in the best restaurants in Las Vegas or in New York or in Los Angeles, they come from Sinaloa.
Gillespie: So you're saying Mexican tomatoes are taking American tomatoes' jobs?
Salinas-León: No, I'm not saying-
Gillespie: You're selling Trump's idea.
Salinas-León: I'm saying that Donald Trump, when he goes and eats at Daniel Boulud, he doesn't know … It is a very expensive dinner, that he's actually the one that's unemploying American … Now, why isn't there room for both? Why don't you let consumers choose at the end of the day?
This leads, I think, to a great deal of fallacies concerning the trade deficit. I mean, the intellectual backwardness of many of Trump's trade advisors contrasts dramatically with some of the very good advice he's gotten in terms of deregulation and in terms of taxes and in terms of draining the swamp.
Gillespie: When Donald Trump announced for the presidency, literally within five minutes he went on a rant.
What kind of anger or resentment does that stir in you or in Mexicans broadly along with it, increasingly xenophobic rhetoric, both coming out of the Republican Party, but many other parts of America?
Salinas-León: I'll tell you what it has done. It has empowered Andrés López Obrador, who is our equivalent of Hugo Chávez. A rabid, primitive, vitriolic, populist. He's on the top for the 2018 presidential election, today. He's leading on the polls, and that's because he has … Donald Trump became his number one campaign advisor with that vitriol. So, instead of talking to each other, because that's usually what classical liberals do, they learn how to talk to each other and listen to each other, the idea of completely discounting Mexicans and talking about your second most important trading partner in that vein, is just that's not the art of the deal. That is just very bad business. There's other ways of going around it. Look at the Republican Doug Ducey in Arizona, talking with Claudia Pavlovich in Sonora. They don't no longer want to distinguish the states. They want to talk about the megaregion and how they can compliment each other's what? Comparative advantage? Has Donald Trump ever heard of that word? Has Peter Navarro ever read Adan Smith? David Ricardo?
Gillespie: We're speaking at Freedom Fest in Las Vegas, the world's largest annual gathering of libertarians and free market people. Two years ago, Donald Trump actually spoke here and you had a heated exchange with him. You asked him a tough question. Recount for us what the question was, what his response was, and either do you feel like you got through it all.
Salinas-León: Actually, I felt rather humiliated. The man does know how to manage the stage. What I asked him was whether he would build a wall in every single state within the United States to keep Nebraska bad hombres out of Missouri and the bad element of Florida out of Washington state, and what that would do to the economy, because by that logic, that's what you should do and for that matter municipalities and whatnot. And so he said, "no," he would build the wall just for Mexico and he accused me of being sent by the Mexican government.
Gillespie: Were you in fact sent by the Mexican government?
Salinas-León: Of course not.
Gillespie: You were sent by the Russian government.
Salinas-León: Or the Asian government or maybe the Tahiti.
Gillespie: Do you feel like xenophobia is on the rise in the NAFTA zone? I mean, are people in an age where economic growth in many cases globally has been slumming down, certainly in the United States in the 21st century, economic growth has been much lower that it had been for the previous 50 or 60 years, is that breeding kind of resentment or a sense of, "We're fighting over a shrinking pie," and that, "We've got to keep out people who we think aren't like us or can't become us"?
Salinas-León: That I think is a very important challenge. There's definitely an ingredient of xenophobia. I think we're still in time to curtail it. Mexican business people and the government have learned that a lot of what Donald Trump says, a lot of the vitriol and the venom are just that. They're rhetoric, and in reality we'll talk about renegotiating NAFTA, but what does that entail? That may actually provide an opportunity to develop, for instance, new technologies to allow trucks on both sides of the border to cross, maybe a special bridge, after you do full disclosure after you agree to be completely surveilled by satellites and whatnot. And maybe that can even pay a little piece of a wall that we'll still take 27 years to build or some such, by the way, probably by Mexican workers and Cemex, Mexican cements, so that may not be all bad for us. But it's the message is what hurts, is, "You're going to pay for it. I'm going to force you to pay for it."
That's just not good diplomacy and that feeds that xenophobia north of the border, but it also feeds it elsewhere. Donald Trump is not a highly regarded leader of the free world and the rest of the world because of his antics and because of the reality TV that he lives in and because of this fantasy, Freudian complex that he might have, that he wants to be number one and he wants to tweet at every moment of the day that he's number one. That's not how you're going to get things done. That's not the art of the deal in statesmanship and leadership in the global arena.
Gillespie: We will leave it there, but the final question, of course that I ask anybody from Mexico who is a classical liberal or libertarian. Friedrich Hayek or Salma Hayek? Who's your favorite Hayek?
Salinas-León: Oh my goodness! That's an impossible question, but I would have to say Friedrich.
Gillespie: Well, I want to thank Roberto Salinas. He is the president of the Mexico Business Forum, for talking to us while we're at Freedom Fest in Las Vegas. Roberto, thanks so much.
Salinas-León: Thank you, Nick.
Gillespie: For Reason, I'm Nick Gillespie.