Daschle distorts NAFTA outcomes to sell TPP

The Trans-Pacific Partnership (TPP) and "fast track" trade authority are generating heated debate.  TPP would expand on terms first established in the North American Free Trade Agreement (NAFTA) and extend them to additional countries. This has placed NAFTA’s 20-year record under the spotlight.

Unfortunately, former Sen. Tom Daschle (D-S.D.) misconstrued the facts of NAFTA’s legacy in his February 20 op-ed in The Hill, “Trade Pacts Are a Tonic for the Economy.”

And Daschle’s assertion that the historic rise in U.S. income inequality “has [little] to do with trade agreements” ignores the broad academic consensus that the current model of trade has contributed significantly to the widening income gap. The only debate among economists has been the degree of the effect.

A recent Economic Policy Institute study estimates that unbalanced trade was responsible for more than 90 percent of the rise in U.S. wage inequality between 1995 and 2011. That period was marked by NAFTA and similar pacts that have incentivized the offshoring of decently-paid U.S. jobs and forced Americans to compete with low-wage workers abroad. As hundreds of thousands of trade-displaced manufacturing workers have joined the glut of Americans competing for lower-paid, non-offshoreable service-sector jobs, real wages have fallen and income inequality has risen.

How can Daschle claim TPP would ameliorate rather than exacerbate inequality, given the pact’s slated expansion of NAFTA-style foreign investor privileges that promote  job offshoring, and its inclusion of Vietnam, where the average minimum wage is 52 cents an hour

Daschle uses the same counterfactual promise repeatedly employed to sell NAFTA-style pacts: these deals support middle-class jobs by boosting U.S. exports. But in fact, the overall growth of U.S. exports to countries that are not “free trade” agreement (FTA) partners has exceeded U.S. export growth to countries that are FTA partners by 30 percent over the last decade. 

Twenty years after NAFTA was sold with such promises, government data reveal that since NAFTA’s enactment, annual growth of U.S. manufacturing exports to Canada and Mexico has fallen 62 percent below the pre-NAFTA rate. Growth of U.S. services exports to NAFTA partners has fallen 49 percent below the pre-NAFTA rate.

Recently the U.S. Trade Representative (USTR) began making the absurd claim that NAFTA has resulted in U.S. trade surpluses with our NAFTA partners, a notion Daschle repeats. This requires a major data distortion: the inclusion of “re-exports.” These are goods made abroad and transited through the United States en route to other countries, such as Chinese-made goods unloaded in a U.S. port on their way to Mexico.

Last year re-exports to NAFTA partners totaled more than $93 billion in goods – none of them made by American workers.

When only counting U.S.-made exports, NAFTA’s legacy has been one of burgeoning, job-displacing U.S. trade deficits. The $9.7 billion pre-NAFTA U.S. goods and services trade deficit with Mexico and Canada has ballooned, reaching $139.3 billion in 2012 (the most recent year for which service trade data is available). This 14-fold “NAFTA deficit” increase represents hundreds of thousands of lost U.S. middle class jobs.

By adding in foreign-made re-exports, USTR and Daschle even claim that we have a manufactured goods trade surplus with NAFTA partners. But the official U.S. International Trade Commission data show we actually have a $64.9 billion manufacturing trade deficit with Canada and Mexico. Before NAFTA, we did in fact have a manufacturing trade surplus with these countries.

Daschle also touts an increase in U.S. agricultural exports under NAFTA, but does not mention the much larger rise in agricultural imports. The average annual U.S. agricultural deficit with Mexico and Canada in NAFTA’s first two decades reached $975 million, almost three times the pre-NAFTA level. And over the last decade, U.S. food exports to Mexico and Canada have actually fallen slightly while U.S. food imports from NAFTA partners have more than doubled, defying the export-boosting promises made to U.S. farmers and ranchers.

Daschle also tries to downplay the NAFTA trade deficit by placing blame on trade in fossil fuels. But the oil share of our goods deficit with Canada and Mexico has declined under NAFTA – from 77 percent in 1993 to 53 percent in 2013. And the non-oil deficit with Canada and Mexico has multiplied more than 13-fold since NAFTA. After removing oil, gas and petroleum products, we still have a NAFTA goods trade deficit of more than $82 billion.

It is the lived experience of NAFTA – job losses, wage stagnation and rising inequality – that has prompted 53 percent of the U.S. public to say that we should “do whatever is necessary” to “renegotiate” or “leave” NAFTA.

Daschle notes that as a presidential candidate, President Obama promised to renegotiate NAFTA if elected. Incredibly, Daschle tries to frame Obama’s push to Fast Track TPP’s extension of the NAFTA model – opposed by 62 percent of the U.S. public – as honoring this promise.

TPP’s many opponents would likely agree with Daschle that “the decision isn’t trade or no trade.” The decision is between the creation of a new trade model that actually works for the majority, or the expansion of an old one that has empirically failed.

Wallach is director of Public Citizen's Global Trade Watch and Beachy is research director.

More in Finance

What Trump's 'America first' means for trade

Read more »