Did NAFTA damage the prospects of free trade?
By W. James Antle III
A dozen years ago, the usually academic debate over the economics of international trade spilled onto front pages and resonated on talk radio as never before. The North American Free Trade Agreement (NAFTA), creating a free-trade zone that included the United States, Mexico and Canada, divided the country and produced coalitions that cut across both party and ideological lines.
NAFTA was conceived by Ronald Reagan, negotiated by George H.W. Bush, shepherded through Congress by Bill Clinton and endorsed by every president since Richard Nixon. Larry King shunted aside his celebrity guests to host a televised debate on the agreement between Al Gore and Ross Perot, exposing millions of Americans to an exchange between the sitting vice president and the most successful third-party presidential candidate since Teddy Roosevelt's Bull Moose campaign on the merits of the Smoot-Hawley tariffs.
The passage of NAFTA (which I heartily supported) over populist objections expedited congressional approval of GATT and U.S. involvement in the World Trade Organization the following year. It seemed to represent a lasting change in the politics of trade. But in retrospect it might have been the high water mark for free trade.
In late July, the House of Representatives barely passed the Central American Free Trade Agreement (CAFTA) by a vote of 217 to 215. Even this narrow margin was secured only after the leadership extended voting 45 minutes beyond the normal time period and loaded transportation and energy bills with compensatory pork (see my article on this in the Sept. 26 issue of The American Conservative).
A month earlier, the Senate approved CAFTA by 55 to 45, the lowest margin in that body ever for a free-trade agreement. There too pork-barrel spending and concessions from the Bush administration were needed to put the agreement over the top. Some of the political resistance was a predictable consequence of textile-state economic anxieties. But how much of it was due to NAFTA's failure to live up to expectations?
CAFTA essentially extended NAFTA-style trade policies to six Central American countries. "Ninety-five percent CAFTA is NAFTA," a trade policy analyst told this writer. The difficulty the White House and GOP congressional leadership faced in ramming CAFTA through was thus a reflection of dissatisfaction with NAFTA.
Trade is often blamed for job losses and income stagnation attributable to other, more complicated economic factors. Sometimes trade agreements win larger tariff reductions from other countries than from the United States. But the political case for free trade has undeniably been harmed by NAFTA boosters' failed predictions.
For example, in violation of many such predictions, our trade surpluses with Mexico turned into trade deficits. And more than a decade into the increasing NAFTA-ification of our trade policy, the overall U.S. merchandise trade deficit stands at $700 billion.
NAFTA was also supposed to curtail the flow of illegal immigrants into America from Mexico. But instead immigration – both legal and illegal – increased following NAFTA's passage. To the consternation of the political class, immigration is fast becoming one of the biggest issues in American politics.
Indeed, members of the Congressional Immigration Caucus warned against the immigration consequences of CAFTA. And Peter Brimelow, quoting David Frum, recently speculated that "in the end American capitalism will probably have to choose between free trade and open immigration."
Moreover, there have been important changes in the global economy since we entered NAFTA. Longtime free-traders have noted that the factors of production may now be as mobile as traded goods, a shift with implications for comparative advantage often ignored in the negotiation of trade agreements.
Perhaps most importantly, the recent debate over CAFTA demonstrated the extent to which the formulation of post-NAFTA trade policy has shifted from cutting tariffs to cutting deals. It does not take thousands of pages, the transfer of Congress' constitutional power to regulate trade to supranational organizations and a host of new economic regulations to reduce government intervention into the free market. Instead of free trade, the result is managed-trade agreements which seek to renegotiate the terms of protectionism rather than end it.
Which brings us to the following paradox: perhaps multilateral trade agreements, even when they include sizeable net tariff reductions, are no longer the best way to promote free trade. NAFTA, CAFTA and the upcoming fight over the Free Trade of the Americas Agreement entangle trade policy in discussions of immigration, globalization and national sovereignty.
Ross Perot warned of the "giant sucking sound" that would attend the arrival of NAFTA. Perhaps it's the sound of air running out of an old establishment orthodoxy on trade.
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