Established in 1994, the sweeping agreement changed the economic game in Canada, Mexico and the United States, and was the most debated issue in it’s time. Even more than HillaryCare.
“Yes, there are places where our agreements could be modernized but here’s the bottom line: trade lowers prices for American consumers and it expands markets for American goods. Risking trade wars is reckless, not wise.”
Many trump supporters say, “it’s what he campaigned on.” So? He campaigned on many things. Sometimes, many opposing sides to the same thing. That doesn’t mean it should be carried out.
Still, on this, he was consistent. Why?
Donald spoke against it early on, even before adoption in the 90’s. He always brought it up in light of our trade history with Japan and other foreign markets with whom we didn’t have free trade agreements. And some concerns were legitimate. Our country had just gone through a massive structural economic change in the 1980’s, and many were unsure of what this agreement would do to stop that change, or reverse it. But this wasn’t Japan. This wasn’t a “bad deal.” Doing nothing was the “bad deal.”
There was a flaw in the premise of their argument: they believed the government should have worked harder to stop the natural course of things, in commerce, and protect special interests from the inevitable. Some didn’t want to simply slow down the impact, they wanted to return to the Laverne & Shirley days, where everyone could get a factory job, a steady paycheck, and pension. Mexico was just a place you saw in the movies, and went on a bender at the border. Lower skills, higher cost, less choice.
All his life, Donald has been a populist. He goes with what sells. And in business, you cannot blame him. In fact, it’s laudable. As a salesman myself, I relate to the impulse to sell what people want, and feed their most primitive desires. People buy what they love. And people love stability and gratification.
Yet as public policy, this is a terrible compass. And most leaders in business and government understand that certain truths exist about human nature, and the way a free market operates. Free businesses will always seek the easiest way to produce the most product, sell it to the most people, and to do it for the lowest cost. Likewise, free people will always seek to buy the most affordable products, from the easiest source, and for the lowest price.
Perhaps government can work to slow down the worst effects of a rapidly changing situation, but to stop it, or reverse it is terrible policy, and counterproductive.
Canada already had a free trade zone with Mexico for years, leaving the American market in an awkward disadvantage. So, NAFTA passed by a decent, bi-partisan margin in late 1993, and went on to create the most valuable, dynamic trade zone in human history. It was intended to slowly eliminate tariffs and conform standards on many aspects of trade in the next 10-15 years. NAFTA set provisions in place for intellectual property, environmental issues, agricultural standards, and transportation infrastructure. Before NAFTA, construction and transportation costs were higher, service industries were less efficient and things like fiber optic telecommunications were even difficult to complete.
In retrospect, this is why leaving NAFTA is a bad idea. It would reverse course on almost everything, cost us trillions of dollars in trade, and destroy agreements from the environment to agricultural standards. It would arguably cause far worse than the naturally-occurring damage that was sped up by the signing of the treaty. But also, because after all these years, many of the negative concerns have already been addressed by the free market, and no longer exist.
A mere four years after the passage of NAFTA, trade had already exploded with Mexico (it’s now 500% higher than 23 years ago), and costs had plummeted for American businesses. Yes, some jobs went south, but more were created up north, and the increased profit led to greater income and quality. Even I got caught up in the “trade deficit” argument for so long, that I failed to see the underlying point: trade is good for improvement, in everything. Now, industries have shifted, standards have risen, profits have increased, and even entirely new industries have come about, creating hundreds of thousands of unique jobs, while millions have been altered, or shifted from one sector to another. Now, the North American Free Trade Zone covers nearly 500,000,000 people and is the grease of a $21 trillion market.
While our trade deficits have doubled or tripled, our costs have plummeted. Meanwhile, their economies have improved, and over time, some industries even reversed. We saw this in the Japanese auto market, as the corporations eventually saw the benefit of moving operations back stateside. Hondas are built in Ohio. Toyotas are built in Kentucky. Nissans are assembled in Missisippi. Not Mexico. The free market at work. Even the union rag, Automotive News admitted that NAFTA led to better cars, lower costs and greater profits. I’m sure that was difficult.
All this talk about “tweaking” or “improving” NAFTA is counterintuitive. Where there is a free market, any “tweaking” is, by definition a backward step, away from the “free” part. Trade wars never work out in an economy that depends on the quick movement of goods, services, and information. Why would anyone want to slow it down?
One of the greatest arguments for free trade is the foreign policy impacts, reduction of intrastate conflicts and the pressure of democratization. These things are stronger today, and Mexico is changing, albeit very slow. Ultimately, the greatest fears of NAFTA, the loss of millions of jobs never materialized, according to a Congressional Research report. And the economic changes that occurred were a tradeoff for lower unemployment, greater profits, more choices, and better efficiency.
The entire argument against NAFTA, or TPP for that matter, comes from a place of progressive thought; the government should manage outcomes, subsidize preferred industries and protect economic interests from the natural effects of a free market. I disagree. And so do the principles of a free market.
Donald trump opposed NAFTA because it was a populist message that resonated with the common man.Even if it wasn’t in their best interest, the masses could be whipped into anger by a changing world because, well, most people don’t like change, and simple messages resonate. It was a simple one: “NAFTA hurts manufacturing jobs!” No, a changing economy hurts manufacturing jobs, and our government got out of the way of letting it change.
But, we got used to it, and eventually that change became our status quo, because freedom always wins over suppression. Change is hard, but a part of human progress.
Now, trump wants to go backward, because its a simple message, and he thrives on the simplest messages. Repealing NAFTA is a reactionary thing, and he’s nothing if not reactionary. Returning to the 1980’s reminds some of the “good ole’ days,” and that always appeals to the masses. But, it will meet more resistance than he thought. And NAFTA beat populism the first time because cooler heads prevailed, and economic freedom appealed to more people than not. That will always be the case in a nation of people who value freedom.