Inside World Trade: The Bogus Bogeyman

March 31, 2008
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Call it a ghost story for our times, ‘The Trade Deal That Devoured America.’ Instead of bug-eyed campers, though, the audience for this yarn is frightened (largely Democratic) voters.

More’s the pity that NAFTA has become a symbol of doom-and-gloom.

There are real economic monsters in this Presidential election to fear: the deterioration of the dollar (because of consumer debt and government deficit); an unmanageable health care system that devours the highest proportionate resources of any country while delivering benefits that rank far below the world’s best (even to those with insurance); the on-going polarization of real purchasing power in the hands of ever smaller portions of the population (which over time must shrink aggregate demand unless you plan to keep issuing credit and devalue the dollar).

And, not to beat a dead horse, the infrastructure. “The most pressing problems can sometimes be the dullest,” Senator Chris Dodd wrote recently following his withdrawal from the Presidential race. He knew whereof he spoke, having failed to find much political capital in his proposed National Infrastructure Bank. But as he keeps pointing out, “with every bursting pipe, potholed road and derailed train, the conclusion becomes inescapable: America’s backbone is decaying.”

So what’s the deal with NAFTA?

“One million jobs have been lost because of NAFTA,” proclaims Barak Obama in Ohio. “I don’t think NAFTA has been good for America-and I never have.”

Not to be outdone, Hilary Clinton accuses Bush Senior of bad negotiating when NAFTA was being developed, proclaiming that even though Bill signed the treaty, she was against it.

Meanwhile, to cite a personal anecdote, I found myself recently in the company of a liberal (which I admit to being) California Democratic political organizer. When NAFTA came up, she went absolutely ballistic. Nothing could defuse her outrage: working families are barely able to make ends meet and the culprit is NAFTA. End of story! Next subject.

The non-partisan Congressional Budget Office might beg to differ, concluding (as it recently did) that, “U.S. trade with Mexico was growing for many years before NAFTA went into effect, and it would have continued to do so with or without the agreement. That growth dwarfs the effects of NAFTA. NAFTA has increased both U.S. exports to and imports from Mexico by a growing amount each year. Those increases are small, and consequently, their effects on employment are also small.”

But facts just get in the way in a ghost story.

The problem, of course, is that facts do matter when it comes to reality. And, even if voters are persuaded to accept distortions and misrepresentations, eventually there’s a price to pay. The price in this case-of obstructing NAFTA-will be a decline in aggregate U.S. economic activity coupled with an increase in the cost of living. Pick your poison!

I’ve long admired Warren Buffet (for his enlightened good sense and commitment to what is best about American democratic capitalism). In his latest letter to his Berkshire Hathaway stockholders, he staked out his ground in this debate: “In developing a sensible trade policy, the U.S. should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behavior that will reduce America’s exports, true trade that benefits both our country and the rest of the world.”

It’s worth repeating his phrase, “true trade that benefits both our country and the rest of the world.” Which, in a nutshell, is NAFTA. We diminish it at our own peril.





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