Donald Trump has called NAFTA the “single worst trade deal in history.” However, I believe that dubious honor should go to the Rus’–Byzantine Treaty between the Byzantine emperor Constantine VII and Igor I of Kiev, concluded in 945 A.D. (Russia really lost bigly on that one.)
NAFTA has been the proverbial whipping boy, a veritable piñata, since its inception in 1994. Despite a slew of highly sophisticated studies carried out by independent economists that clearly show that NAFTA has produced marginal gains and only marginal losses, politicians, ideologues, and pundits of the left and right continue to slam the agreement as the economic equivalent of the bubonic plague.
As of June 2017, there were 279 regional trade agreements in force worldwide. Surely, this would not be the case if these agreements were not deemed mutually beneficial among all parties. A comprehensive study by the U.S. International Trade Commission found that bilateral and regional trade agreements increase both employment and real gross domestic product. The effects are even greater with trade agreements that are specific to individual sectors, such as textiles, automobiles, and agricultural products.
Thanks to NAFTA, Florida has been able to boost exports to Canada and Mexico by more than 173 percent and add 1.6 million net private-sector jobs. Canadian businesses and consumers import between $3 million and $4 billion worth of Florida-origin goods each year, including high-value manufactured products, medical devices, and IT services.
And 67 percent of U.S. imports from Mexico are inputs used in further processing. Since NAFTA, Mexican foreign direct investment in the United States increased eight-fold, from a mere $2.069 billion in 1994 to $17.6 billion in 2013.
Of course, there are losers, too. Florida agriculture has not fared well since NAFTA but it is not all the fault of the accord. Developers, crop disease, and the Everglades restoration project are culprits, as well.
Keeping track of imports and exports under any trade agreement is a daunting task. Under NAFTA components may cross the Canadian, Mexican and U.S. borders a dozen times before final assembly. And when those “Made in Mexico” automobiles enter the United States — booked as an import — bear in mind that 50 percent to 67 percent of the components were made in the United States and then shipped to Mexico for final assembly.
But what about those nasty trade deficits that protectionists harangue about? Guess what? They don’t matter.
All of us have “trade deficits” when we take out a mortgage or carry a balance on our credit cards. What is important is only our ability to make our mortgage payments, allowing us to enjoy our homes, or make the minimum monthly payment on our credit card. If I own a landscaping company, I choose to have a “deficit” with my bank for a loan to buy several lawn mowers so my crew can cut grass, make money from their use, and pay back the loan to the bank. Without being in “deficit” this economic activity and its multiplier effects (buying food, gas, going to the movies) would not take place.
Imports do not lower our economic growth. The money that foreigners earn often is used to buy government bonds and real estate, and to build factories in the United States, employing thousands of American workers. One need look no further than foreign automobile manufacturers in Southern states, in particular.
Let’s remember that we run not deficits but billions of dollars in surpluses with our NAFTA partners in services — the fastest growing sector of the U.S. economy. The official reporting of trade exports and imports cites merchandise trade only; and even there our total deficit with our NAFTA partners is only 13 percent of our overall trade deficit.
NAFTA’s intent was not to create jobs and balance the trade account but to strip impediments to trade among all three countries, allowing companies to do business more easily so consumers in their nations can benefit from a better choice of goods at better prices. The Trump administration should keep this mind when it begins negotiations in this month for a new version of NAFTA.
Jerry Haar is a business professor at Florida International University and a global fellow of the Woodrow Wilson International Center for Scholars in Washington, D.C.