As President Barack Obama makes the case for expansive new trade agreements, he has had to contend with the vexing image of the last big trade deal debated in the national spotlight, the North American Free Trade Agreement (NAFTA). In the perception of some Americans, including a significant number of Democrats, NAFTA has become a cautionary tale, invoked today as a warning that similar deals will harm the U.S. economy.
This is unfortunate on two counts. First, comparing the substance of current negotiations to NAFTA, an agreement reached at the end of the Cold War and the dawn of globalization, is like comparing the latest smartphone to an early Macintosh desktop. The 12-nation Trans-Pacific Partnership (TPP) agreement being hammered out by the administration is more sophisticated, comprehensive and user-friendly than NAFTA was in its day. It would also connect the United States to a much larger global network. U.S. Trade Representative Michael Froman is negotiating a state-of-the-art agreement, and Obama has advanced persuasive arguments for both the Trans-Pacific Partnership and the Trade Promotion Authority he needs to seal the deal.
Second, NAFTA’s legacy is more positive and instructive than its ardent critics recognize. Reducing NAFTA to a caricature obscures both its achievements and some valuable lessons – good and bad. As part of the White House team that helped NAFTA become a reality, I think its record over the past 20 years can contribute to the current debate and to larger questions about trade and the United States’ role in the world.
NAFTA, which was negotiated under President George H.W. Bush and signed into law by President Bill Clinton, united the economies of Canada, Mexico and the United States. Today, Canada is our largest export market and Mexico is the second largest. Trade in North America has increased by 400 percent, passing $1.1 trillion per year. More U.S. exports go to Mexico than to France, Germany, the Netherlands and Britain combined. We export more to Canada than to the European Union.
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The successes went well beyond the balance sheet, however. NAFTA boosted U.S. security and regional stability. Trade is a powerful instrument of geopolitics, binding us to our allies. NAFTA smoothed more than a century of friction in U.S.-Mexico relations. It was a catalyst for opening Mexico’s economy and its political system; within a decade, the country ended generations of one-party rule. Mexico is today undertaking reforms that would have been unthinkable 20 years ago. The success of a North American platform in energy and manufacturing has yielded diplomatic and security cooperation.
Just as NAFTA cemented ties with our neighbors and showed that the United States would not turn inward after the fall of the Soviet Union, the TPP can be an essential bonding agent in our relations in Asia. It is a crucial sign of our engagement with a region where China seeks to assert more influence.
The sharpest criticism of NAFTA is that it caused U.S. job losses and lower wages, a concern painfully reflected in the hardship of workers who saw jobs go overseas. The rise of the global economy, advances in technology and other factors have transformed the American workplace. How big was NAFTA’s role? Economists disagree. Assessing its overall economic impact, a report last month by the Congressional Research Service issued a split decision: “In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters.” Trade related to NAFTA, despite significant growth, does remain a relatively small part of the total U.S. economy. Still, evidence suggests net job creation and more high-wage jobs created in the process. According to the U.S. Chamber of Commerce, around 14 million U.S. jobs depend on trade with Canada and Mexico, with nearly 5 million of those jobs due to the trade increase generated by NAFTA.
The disruptive power of trade is a reality we can’t ignore. It brings benefits and costs. Trade helps keep inflation and consumer prices low. NAFTA boosted productivity through competition. On jobs, the lessons of NAFTA argue for a holistic approach to education and training assistance for employees along with infrastructure and other investment. The profits of trade must flow not only to shareholders but also to workers. Notably, agreements in NAFTA on labor and the environment were handled in “side letters” drafted after negotiations. Now, they are being baked into the deal-making.
The passage of NAFTA was a rare bipartisan triumph. Congress approved the measure with a Republican majority and more than 100 Democratic votes after exhaustive persuasion by Clinton. “It’s never fun passing a trade bill in this town,” Obama said last week. But it is a critical test of leadership for both the president and the country. As in 1993, bipartisan support is needed not just to muster enough votes. It sends a clear message that the United States will not turn inward from the realities of the 21st century.
Trade agreements are a long-term wager on the future. That’s a good reason to exorcise the ghosts of NAFTA. It did not invent the forces of globalization; it shaped them in the interests of the United States. The Trans-Pacific Partnership can continue that work.
McLarty was White House chief of staff and special envoy for the Americas in the Clinton administration. He is chairman of McLarty Associates and McLarty Companies.