The Era of Expanding International Trade Agreements is Drawing to a Close

If you listen to the debate between Hillary Clinton and Barack Obama, you would think that the North American Free Trade Agreement (“NAFTA”) was one of the worst trade deals that the United States Government ever negotiated and that the American people have suffered grievously from its provisions.

Never mind the fact that it was Hillary Clinton’s husband who negotiated the final details of NAFTA and her husband’s vice president, Al Gore, who went on nationwide television to vigorously defend NAFTA against Ross Perot just after the treaty was concluded.

Ignore too the fact that President Clinton fought his own party to expand free trade for his entire eight years in office, expanding trade with China, reaching a number of other free trade agreements, and beginning the negotiations that led to the current Doha Round within the World Trade Organization.

With a Republican in the White House, and labor unions strongly against the concept that free trade benefits the U.S. economy, there is no reason to look on the bright side of NAFTA.

Hence there is competition between the Democratic presidential candidates with regard to who would be tougher in renegotiating this trade document.

Interestingly, the major factor that has gone unmentioned in the Democratic debate is that our trade deficit with NAFTA has gotten steadily worse during this decade because we have become more and more dependent on the oil and gas made available by our two North American trading partners.

It is true that oil and gas imports from Canada and Mexico have gone over the $100 billion threshold. But what is the alternative? Making additional purchases from Saudi Arabia, Nigeria or, perhaps, Venezuela?

Whatever one thinks of our profligate dependence on foreign oil, it is certainly better to have a secure and friendly source of it on our borders than to contribute further treasure to the unstable or hostile alternative sources for the same commodity.

By contrast, our nonhydrocarbon- based trade deficit with our NAFTA partners has hardly moved since 2001, fluctuating in a range between $35 billion and $40 billion. And, with the dollar falling significantly against both of these currencies, one can expect that the bilateral trade deficit with these two countries will fall significantly during 2008, unless the two candidates propose to renegotiate the economic laws of trade as well.

Moreover, as sophisticated as both of these candidates are, I am sure that they are aware of the dangers inherent in renegotiating treaties with even your closest trading partners. The Canadians have noted that they might want to negotiate a better deal on their petroleum exports to us, and they are still angry about what they consider to be our unfair position on softwood lumber and a host of other trade issues.

Certainly the workers in Ohio (and elsewhere across America) feel aggrieved by factory shutdowns and threats of outsourcing when they negotiate their contracts.

But the low-wage factories in Mexico actually have seen jobs lost to even lower-wage China. Goldman Sachs estimated that Mexico lost as much as 4 percent of its GDP to Chinese competition.

Indeed, almost four-fifths of the U.S. worldwide trade deficit, which hit $800 billion last year, can be attributed to two sources: China and petroleum imports. If you include automobile imports into the equation, you have pretty much accounted for the entirety of our trade deficit.

Why then the focus on NAFTA?

Such an argument misidentifies the source of our trade problems. It scapegoats two close trading partners, and it promises a false remedy to very real problems.

We have to find a solution to our dependence on imported oil and gas. We have to bring our massive trade deficit down.

But, we are not going to find a solution by beating up on Canada and Mexico.

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