Not so fast with those NAFTA talking points

Not so fast with those NAFTA talking points
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As this week’s round of talks to modernize NAFTA takes place in Washington, and as you listen to President TrumpDonald John TrumpTrump cites tax cuts over judges as having biggest impact of his presidency Trump cites tax cuts over judges as having biggest impact of his presidency Ocasio-Cortez claps back at Trump after he cites her in tweet rejecting impeachment MORE and some of his advisers, NAFTA would seem to be a juggernaut that explains why Midwest industrial towns are suffering and why the U.S. has become a shadow of its 1950s manufacturing prowess, abused and taken advantage of particularly by its neighbor to the south.

And, at odds with this view, some of the president’s advisers somehow even find room to additionally blame the agreement for an alleged lackluster economic growth in Mexico and the suppression of wages there. NAFTA has failed, we are told, in its objective of transforming Mexico into a fully developed country with wages converging with those of Canada and the U.S., and promoting more and better manufacturing jobs all around the North American region. 

But let’s be clear. NAFTA is only a trade agreement, and it has done what a good trade agreement is supposed to do, quite well: increase trade and buttress the competitive advantage of three nations and many of their regions.

Free-trade agreements provide clear and permanent rules to keep markets open; no more, no less. Their purpose is, precisely, to eliminate managed trade by means of which interest groups, politicians, lawyers and government officials decide who, when and why a business becomes a successful. Growth and wealth creation require hard work and a market-friendly environment, not managed trade. In pre-NAFTA days, that is exactly the way Mexico’s economic policy was run. 

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NAFTA could no more “develop” Mexico than any single piece of legislation can make every U.S. citizen prosperous. It is individuals, firms and towns investing in their own futures that enable communities and their members to become wealthier. 

 

Of course, this is heavily influenced by a landscape populated by the sum of myriad policies at the national, state and local levels. There are many reasons why Mexico has not grown at rates similar to other developing countries, such as South Korea, and many explanations about why Mexican wages did not grow to converge with those of the U.S. and Canada. But those reasons and explanations are unrelated to NAFTA and should not be laid at NAFTA’s doorstep.

The same can be said of the malaise in the industrial heartland of America: It is not NAFTA, nor imports from Mexico, nor jobs moving south, that explains the challenges from manufacturing job losses and the stagnation of many industrial towns. It is more complex than that, and simply pressing control-alt-delete, as Mr. Trump would like to do with everything he dislikes or disagrees with, and erasing NAFTA will not solve those challenges.

Withdrawing from NAFTA is a bad idea. Period. It makes no sense economically, it makes even less sense geostrategically. And that’s why it’s important — even in the fact-free Washington of today — to take on the numbers being thrown around by NAFTA critics, particularly as they pertain to jobs and wages.  

First of all, a large share of the “4 million jobs” lost in the U.S. since 1994 have more to do with the entry of China to the WTO, increasing automation and, especially, the shedding of jobs during the Great Recession, than to trade with Mexico. In fact, there is a positive correlation between the creation of manufacturing jobs in the U.S. and trade with Mexico. 

Manufacturing jobs in the Midwest grew by more than 7 percentage points between 2010 and 2015, while, at the same time, the share of Mexican imports to the U.S. grew by 3 percentage points and the share of U.S. exports to Mexico by 5 percentage points. In other words, deeper integration with Mexico and job creation actually move together.

This is, of course, rather obvious: The U.S. and Mexico produce jointly so that, when economic activity goes up in one, it responds in parallel fashion in the other. Manufacturing jobs in both Mexico and the U.S. are positively correlated and mutually dependent, an economic phenomenon that highlights the profound integration of both economies.

It is also not true that wages have stagnated in the region during the last 20 years. To the contrary, in 2016 dollars, Mexican, U.S. and Canadian average wages grew in terms of purchasing power parity by 28, 31 and 37 percent, respectively, from 1996 to 2016. Manufacturing hourly pay did not do as well for the U.S. and Canada during that period, 6 and 19 percent growth respectively, but it grew by 43 percent in Mexico, from $4.74 to $6.76 per hour, and in the case of U.S.-owned companies in Mexico, $7.80. 

Mexican welfare indicators are also proof of the benefits of free markets and stable economics. For instance, in the period since NAFTA was signed, Mexico experienced a significant increase in terms of two important health indicators: access to sanitation facilities, which increased by almost 20 percent, while the infant mortality rate decreased from over 35 per 1,000 deaths in 1990 to less than 15 in 2015. 

If North America jettisons NAFTA, a successful agreement among neighbors, partners and allies, on the basis of unsubstantiated arguments and a mercantilist vision, Teflon-coated to hard data, and lacking any supporting evidence, countries around the world may conclude the region is not worth their trust or investment and our citizens will suffer the consequences. The choice the U.S. faces as to whether it revamps NAFTA or discards it is a binary trade-off: Mexico, Canada and the U.S. can become partners to success or accomplices to failure in the 21st century. 

Arturo Sarukhan served as Mexico’s ambassador to the United States from 2007 to 2013. He is an international strategic consultant based in Washington and an adjunct professor at George Washington University and a Distinguished Visiting Professor at the Annenberg Center for Public Diplomacy at the University of Southern California. Follow him on Twitter @Arturo_Sarukhan