What NAFTA teaches us about new trade deal
The 1994 agreement has already tested some arguments
The Obama administration this week will continue to wrestle with reluctant congressional Democrats seeking a compromise to advance the president’s hoped-for legacy of expanding trading relations with Asia. Although a variety of political concerns color the debate, the heart of the issue is economic: whether expanding free trade is good for the U.S. economy and for American workers, a key constituency for Democrats.
If the dispute sounds familiar, it is. Americans have been fighting over free trade and its fallout since the North American Free Trade Agreement, which went into effect in 1994 despite strong opposition from unions and their workers’ rights allies. NAFTA cut tariffs and changed rules to allow free trade among the United States, Canada and Mexico.
Ever since, NAFTA has served as a template for agreements that cover U.S. free-trade relations, which have grown to include 20 countries. NAFTA also serves as a cautionary tale of what opponents maintain has gone wrong with free trade and what proponents argue has succeeded. Here is a primer on the TransPacific Partnership dispute and what NAFTA can teach us. What are the arguments in favor of the free-trade bill?
The arguments for free trade predate NAFTA but picked up speed in the 1990s. In general, proponents say free trade stimulates the economies of all of the countries by allowing goods and money to more easily cross borders, creating new businesses, jobs and wealth for everyone. What are the arguments against free trade?
The major argument is that free trade doesn’t fulfill its promise in creating new jobs or wealth. Even if new jobs are created, they are far less desirable and do not pay as well as the jobs that are lost. Further, cheaper foreign goods will mean that U.S. wages will be forced down so American companies can compete. Over time, environmental or safety rules that protect U.S. workers will also tend to be ignored as companies struggle to keep labor costs
down. Have jobs been created or lost?
Both. Some jobs, mainly in manufacturing, were certainly lost, but proponents of free trade argue that the number of created jobs were economically more significant.
For example, in their report on the effects of NAFTA, Gary Hufbauer and Jeffrey Schott of the pro-trade Peterson Institute for International Economics in Washington said the United States gained 100,000 jobs per year thanks to increased North American trade from 1993 to 2003, although all of the increase may not have been due to NAFTA.
In 2005, Peterson researchers estimated that heightened trade had increased U.S. economic output by 7.3%.
Opponents sharply disagree. Public Citizen, a Washington-based consumer advocacy group, estimated that 1 million jobs have been lost because of NAFTA. What had been a small trade surplus in the U.S. turned into a combined trade deficit of $177 billion as more goods from Mexico and Canada crossed the border, the consumer group says, citing government statistics.
There certainly were some jobs lost, however. According to the White House, 2.2 million American workers have received federal money or retraining since 1974 after losing their jobs because of trade-related issues. How significant is the job loss?
This is another contentious area. The number of manufacturing workers has fallen this century from about 15 million to about 13 million, but factories have continued to function at well more than 85% output (with a slight dip during the recession years). Better technology allowed industry to continue to function well despite the loss of some jobs.
But many factory workers found they had to take pay cuts to find new work. “According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20%,” Public Citizen said. In effect, the middle class, fueled by better-paying jobs, shrunk, and income inequality increased as a result of the trade agreement. Is there a neutral view?
In 2013, on the 20th anniversary of NAFTA’s passage, the Congressional Research Service tried to find the middle ground: “In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters,” the
report concluded. What has happened so far in Congress?
The House approved the first part of a bill, giving the administration fast-track authority to negotiate the Trans-Pacific Partnership trade deal, or TPP, designed to cover trade relations among Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Japan, the United States and Vietnam. Fast-track authority means Congress can debate the agreement and vote it up or down, without amendment or filibuster, a faster than usual route.
However, 144 Democrats in the House joined with 158 Republicans to defeat the part of the trade bill known as Trade Adjustment Assistance, or TAA, designed to help those who have lost their jobs because of traderelated issues. About 125 of the Democrats had supported TAA when it was last reauthorized in 2011, but refused to back the program this time around because of questions about how it was to be funded.
The Senate has approved both parts of the trade measure in one vote so the House cannot advance TPP to the president’s desk until it solves the TAA portion. The Obama administration needs to convince dozens of Democrats to change their votes on the TAA or figure out a way to resolve the conflict between the two houses.