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Violating NAFTA? Not Smart, Mr. Trump

Violating NAFTA? Not Smart, Mr. Trump

Now that a poll-leading presidential candidate for one of the two main political parties has signaled he would violate and even walk away from the North American Free Trade Agreement, it’s time to review what NAFTA is.

On Friday night, Donald Trump told a rally in Oklahoma City, “The problem with free trade is you need smart negotiators on your side. When you have stupid people like we do, free trade’s no good.”

According to an Associated Press article, Trump told CBS’ “60 Minutes” on Sunday, “We will either renegotiate it or we will break it.” He called NAFTA “a disaster. The “stupid people” who negotiated NAFTA? It was the administration of President George H.W. Bush in the early 1990s. His U.S. trade representative initialed the negotiated deal in a San Antonio ceremony in 1992.

What did NAFTA do?

First, NAFTA did not do two things. It did not integrate the U.S.-Mexico economies. That already was well underway by 1992 without any trade agreement. It had been happening for decades, partly under Mexico’s twin-plant program known as maquiladoras. NAFTA did little to accelerate or slow the integration. It mainly codified what already was happening.

NAFTA also did not create a “giant sucking sound” of jobs leaving the United States. The United States now is at or near full employment. Since NAFTA went into effect in 1994, U.S. employment levels have gone up and down due to business cycles. NAFTA did not create periods of high unemployment rates. Two recessions and the 2008 financial crisis did that. NAFTA was not responsible for any of those.

The U.S., Mexican and Canadian economies have expanded dramatically since 1994. Maybe NAFTA did not do that, either, but it didn’t stop economic growth.
NAFTA did phase out tariffs, mainly high Mexico tariffs for U.S. goods because U.S. tariffs on Mexican goods already were low. Mexico gave up much more than the United States did. Is that stupid?

NAFTA added protections for U.S. business investments so the Mexican government couldn’t nationalize them. NAFTA added intellectual property protectionsintellectual property protections for U.S. companies in Mexico. NAFTA added dispute mechanisms on the environment and labor. Were any of those stupid?

U.S. legislation added to its NAFTA approval created the San Antonio-based North American Development Bank. The binational bank has financed billions of dollars in utility improvements along the U.S.-Mexico border zone, making that long-overlooked area more livable and ready for business investment. That looks smart.

But Trump would walk the United States away from NAFTA. Not only that, he wants to add a tax on U.S. companies that manufacture components and goods in Mexico.

Citing Ford Motor Co. as an example, Trump said, “If they want to sell that (Mexican-assembled) car in the United States, they pay a tax.”

If that ever happens, Ford wouldn’t pay the tax ultimately. Instead, Ford’s U.S. customers would. If Trump is consistent, he would apply his tax to all goods made by U.S. companies overseas, including China.

If applied globally, tariffs on U.S. exports around the world would zoom dramatically in retaliation against higher U.S. tariffs. That would destroy U.S. manufacturing.
Presumably, Trump is trying to promise U.S. prevailing wages for more U.S. workers. The notion of killing foreign competition sounds good to U.S. workers. But what good are higher wages if prices on goods rise as much as or more than wages? How many manufacturing jobs would disappear if U.S. exports slowed?

Trump’s proposals would undermine trade based on the idea of comparative advantage. Comparative advantage is a term that describes how nations that are efficient at producing some goods can export them, using the income to buy other goods they are not good at making from countries that are better at it.

Trade policies that seek more comparative advantage create interdependencies that lead to peaceful relations between countries, not war or economic depressions.

Trade agreements such as NAFTA have improved the chances for balanced, fair trade. Trade agreements are being negotiated that would improve the outlook for U.S. exports to Asia and Europe if they lower tariffs and barriers. They won’t be stupid.

By David Hendricks, Business writer and columnist | San Antonio Express-News

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