When we say NAFTA, what do we really mean?

NAFTA figured heavily into the Democratic primary in Ohio, yet most of the news coverage and the debates themselves proved unsatisfying. We were served the canard that NAFTA helps consumers but hurt manufacturing jobs. NPR made it sound as if the trade agreement’s consequences are ancient history. The Democrats were more muted on NAFTA in Texas, where Laredo has boomed as a trade port.

Of course, NAFTA is a proxy for trade liberalization and globalization. China has hurt Ohio manufacturing more than Mexico. So, too, have the domestic automakers, undergirding the state economy, that continue to make boring, homely cars that fewer Americans want to buy.

But the real issue goes deeper even than that, and any fixes will be problematic. That doesn’t mean we shouldn’t make them.

It’s easy to look back on NAFTA with regret. At the time of its passage, however, things looked far different. The trade agreement seemed likely to lift Mexico into first-world status, providing a lucrative customer for American manufactured goods. By improving investment in Mexico, it would largely moot illegal immigration by providing good jobs there.

Unfortunately, several factors undermined these hopes from the beginning. Unlike the European Union’s expansion, NAFTA failed to provide the kind of infrastructure investments that would help lift employment and living standards in Mexico. Also, globalization’s pressure for ever-cheaper labor was at the commanding heights of the world economy by the mid-1990s. The result was wholesale movement of manufacturing jobs overseas, but not enough to Mexico to provide enough jobs for a young, jobless populace.

NAFTA did destabilize Mexico’s economy. Traditionally protected sectors, including agriculture in the poorest, rural areas, were devastated. Investment did come, but failed to lift the poor, even though the middle class did grow somewhat. As a result, illegal immigration exploded.  This was abetted by two groups of bad actors: corrupt Mexican officials and venal American employers. The former group has become even less effective in governing because of the growing power of the narco lords. The latter threw lower-paid Americans out of jobs to hire even-lower-paid Mexican migrants.

Similarly, the World Trade Organization was supposed to be a big winner for Americans. Sure, there would be losers, but they could be retrained. Now we ask: for what? Throughout the heartland, American living standards are under pressure, a fact that will become glaringly apparent now that the Ponzi scheme of house-building has collapsed. We are still the most lucrative market for importers, but we’re paying for credit.

When you think about it, NAFTA and trade are a proxy of broken promises. Little-by-little, election by election, Americans gave up their unions and job security. Pensions were swapped for 401(k)s. Layoffs proliferated so companies could be “lean” and “nimble” to better compete. But in exchange, average Americans were supposed to get a piece of the action on Wall Street. We would be Shareholder Nation. Now we realize it was a crappy bargain and much of Wall Street makes a sleazy casino look honest. The list of broken promises is a long one, capped by the war in Iraq.

Back to trade: fixing the mess won’t be easy. The current situation has winners and a political party determined to protect them. These aren’t just the rich businesspeople that have profited from the race to the bottom. Millions of red-state Americans think they never had it so good with the cheap crap from Wal-Mart. They’ve been brainwashed by talk radio and GOP politicians to believe the real problem is high taxes. Most don’t seem to grasp that the cheap stuff comes with a big price to their future living standards, whether in wages (stagnant for years) or retirement hopes (as we have to pay back all this debt, one way or another). They often hate the illegal immigrants while enjoying the cheap services they provide. "Consumers" everywhere don't seem to realize they must also be producers and citizens if the nation is to have a quality future.

Whatever the candidates say about requiring environmental and labor standards in trade agreements, the only answer may be some kind of return to tariffs. And that risks provoking a worldwide recession, if not worse, with added pain because we are so in debt to the Chinese. But what else is the answer? That’s not a rhetorical question. I’ve spent my career as a free trader. But the situation we now face is essentially standing powerless while the middle class and worker standards it took a century to build are thrown away.

Yes, we need to get the Chinese to buy more American products. But how’s that working out for us, after years of pro-business, pro-Beijing American administrations begging for business? A few Boeing jetliners can’t offset the hollowing out of the heartland. Yes, we need invest in education, green tech and infrastructure for a 21st century economy. But this will require a government effort the people haven’t been asked to support in decades.

The cheap stuff from Asia, and Mexico, is immediate gratification. The rest, we can put that off until mañana. Such has become the American psyche. NAFTA is the least of our troubles.

Comments

[Bob Godwin]

Jon, you make it sound like without NAFTA there would be no problems in the heartland, that jobs and pensions would be secure. The fact of the matter is that the world changed dramatically and competitive advantages went to the low-cost producer. Industries could never have maintained the labor cost structure that autos, airlines, steel and other major sectors managed to build in the '70s and '80s, that came back to haunt them in the '90s. There would have been no customers for their goods and services at the prices the manufacturers would have had to charge.

The sad reality is that the world passed Ohio and Michigan and other Midwest states by. Their factories were built on high-skilled, high-priced labor. But overseas competition and advancing manufacturing technology obsoleted them.

You've written so eloquently about Arizona's slow decline to irrelevancy in the global market. You might start including the rust belt when you talk about states who no longer control their own destiny. They're all in the same boat. And really, if there was anything that actually could have been done about it, there was no collective will to do so. Much like global climate change, sadly.

[Jon Talton]

It's a tough one, Bob, and I don't have the answers. I was in the Midwest in the late 1980s and again in the mid-1990s, and watched as many companies restructured, adopted top technology and practices, and became competitive...for awhile. These were much more nimble, productive, technologically advanced and lean companies than they had been in the '70s and much of the '80s. But it wasn't enough.

[Tel]

Toyota makes boring, homely, predictable, reliable cars that are available in a range of sizes and are decently fuel efficient. You might also notice that Toyota seem to be growing while the US auto makers aren't. Maybe excitement isn't what most consumers want in a car?

[Mark]

NAFTA is American code for "Mexican".
What do you mean indeed? Any study I've seen shows that NAFTA has been good for the USA and Canada. Maybe not so much for Mexico, as the rich there really do get richer, at the expense of the environment and worker's rights.
Of course then we get into migrant workers. The USA has always depended on illegal workers. Demonizing them now is hypocritical to say the least (hey there southern Americans whom this angers, who cuts YOUR lawn?)
I suspect the real reason the USA wants to build a border fence, followed by a wall, followed by a minefield, followed by robotic guard towers, is that the They know that in 20 years or so millions of refugees will want to cross the border to escape the effects of global warming.
What we are hearing now is just the groundwork for what's to follow.
As for Canada, if millions of South Americans are fighting to head north looking for food, water and daytime temps less than 120F, where are the Americans going to go?
Oh, oh.