In Defense of Nafta

Ford pickups: Made in Canada, Mexico and the U.S.

Photographer: Sarah Martone/Bloomberg

The fate of America's most important free-trade agreement this century has become caught in a debate over its most important free-trade agreement of the last century. When opponents of the proposed Trans-Pacific Partnership say the deal would be "Nafta on steroids," it's fair to say: Yes, and isn’t that the point?

The North American Free Trade Agreement, which took effect in 1994, has helped to raise the living standards of Americans, Canadians and Mexicans. The TPP, which President Barack Obama hopes will serve as the capstone to his second term, can be expected to do the same for the 12 Pacific Rim nations it includes. 

After some procedural shenanigans in the Senate -- which nearly scuttled an important trade-promotion measure as well as the TPP talks -- free-trade skeptics are back to citing Nafta's supposed failings. Their indictment consists mainly of three charges: that the agreement resulted in bigger trade deficits, greater job losses and lower wages. None of these arguments stands up to scrutiny. 

Nafta's opponents are fond of pointing out that the U.S. now has a $44 billion trade deficit with Mexico, compared with a $5 billion pre-Nafta surplus. That $49 billion swing, however, is due less to Nafta than to the exponential growth in global trade in the 1990s and 2000s. The U.S. trade deficit with India, with which the U.S. has no trade treaty, also ballooned. Moreover, the trade data obscure the fact that goods imported from Mexico have about 40 percent U.S. content. 

Nafta adversaries also say that, because of the deal, the U.S. has lost jobs. But the question of exactly how many jobs were lost is essentially unanswerable, even for economists. (Some 850,000 jobless workers have received what is known as "trade adjustment assistance" over the last two decades, but how many others got jobs because of increased exports to Mexico and Canada?) At any rate, it is a minuscule number in a U.S. workforce of 135 million people, 4 million to 6 million of whom lose or leave their jobs each month. 

And what about that claim that Nafta suppressed wages? Yes, manufacturing wages have declined, but mainly because manufacturers are choosing automation over humans to make things and opting to move to lower-paying Southern states that eschew trade unions. Overall, in all three countries, real wages have risen since 1994. 

What's missing from the Nafta debate is that trade among the three countries has jumped 300 percent, to $1.2 trillion. Absent, too, is recognition that Nafta has helped to make U.S. companies more efficient, competitive and profitable. Less expensive imports have improved Americans' purchasing power, resulting in higher living standards. And per-person gross domestic product is up in all three Nafta nations.

Opponents of such agreements like to point out that trade creates losers as well as winners. Of course it does -- as does competition, as does technology. The goal should be to help the losers adjust, not prevent these deals altogether. Because for all the problems it creates -- and they are real -- commerce among nations is one of the greatest forces for peace and prosperity the world has ever known.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.