NAFTA's Bad Rap

In January 2009, the North American Free Trade Agreement will reach its fifteenth birthday. No cause for celebration, say NAFTA critics, who argue that the trade pact must be fixed orditched. Most economists disagree and regard NAFTA as a tremendous success, contributing to better jobs and higher income in the three partner countries—though in Mexico’s case well below levels promised by politicians during the ratification debate.

Trade among the North American partners is up more than threefold since the pact entered into force in 1994, and now totals about $900 billion annually. Canada and Mexico account for almost 30 percent of U.S. two-way merchandise trade. A rough calculation suggests that NAFTA has added about $60 billion annually to U.S. national income, about $200 per American. Yet level-headed NAFTA proponents recognize that economic integration spawns both losers and winners. Not every worker or community benefits, and adjustment programs for hard-hit workers remain inadequate to this day in the United States and Mexico. On balance, however, the rewards from economic integration far exceed the costs—by a ratio of ten to one or better.

So why does NAFTA have such a bad “rep”? The short answer is that many politicians and pundits dismiss the economists and blame NAFTA for all manner of problems. Naysayers rely on anecdotes to make their case,and when they use statistics, they are very selective.

In the battle of sound bites and bumper stickers, NAFTA has become the short cut for venting anger about the alleged misdeeds of globalization: grinding down workers, desecrating the environment, and fattening Wall Street. Such critiques are standard fare in Democratic stump speeches. Not surprisingly, anti-NAFTA rhetoric has escalated as the U.S. economy has weakened. Senators Barack Obama (D-IL) and Hillary Clinton (D-NY), in their race for the Democratic presidential nomination, even threatened to withdraw from the pact. Bombast not only makes headlines in U.S. primaries; it also excites Canadians and Mexicans. Words can be costly, even when they are no more than political slogans conveying idle threats. No U.S. president could pursue the disruptive course of action previewed by the Democratic candidates. American jobs would be lost, American exports would drop, and America’s closest neighbors would become testy antagonists.