July 26, 2017

Rumors of NAFTA’s Death are Overblown



On the campaign trail, Mr. Trump derided NAFTA as the worst trade ever struck and vowed to rip it up. His administration’s actions so far have failed to satisfy protectionist wonks. Todd Tucker at the Roosevelt Institute is highly critical. In particular, he is disappointed that none of the Trump administration’s anti-trade, economic nationalism proposals seemed to make it into the latest draft on negotiating objectives.

Given Trump’s withering critique of trade pacts, one might have expected at least some nod to economic populists. But that is completely absent from this document.

In short, from digital commerce to competition policy to intellectual property to financial services, this is basically the TPP deal that Trump canned in his first week in office.

To my ears this is good news. One of the largest substantive fears I had about the administration was its ability to disrupt the global trade regime that has lead not only to unprecedented prosperity around the world, but has dramatically reduced the pre-conditions for war. Nations that depend on each other for economic partnership–whose supply chains are interdependent–have a difficult time mobilizing for large scale war and face vested interests at home that encourage peace. By pulling back to an ‘America first’ stance we remove those safeguards against large scale war.

Not only that, but it’s difficult to imagine the dominance of the U.S. tech industry without its supply chain support in Asia. Silicon Valley has been able to expand at such a rapid pace in large part due to the Pacific Rim’s manufacturing engine that has expanded along with it.

The biggest reason to cheerlead the growth in global trade, however, is the fact that hundreds of millions of people in China, Korea, Singapore, Malaysia, and Taiwan have seen breathtaking increases in income and life opportunities. Over the last few decades, more people in Asia have been lifted out of crushing poverty than live in North America. This fact cannot be ignored.

We should care very deeply about the disrupting effects that trade has had on the American heartland. However, even if those effects were impossible to avoid, trade would still be worth it. Healing the wounds of our countryman has to be done in a way that does not lock the rest of the developing world out of this amazing transition or threaten to turn the clock back on what’s been done along the Pacific Rim.

To wit, the administration’s unwillingness, or perhaps inability, to stop the dismantling of the essence of our trade agreements in encouraging. Indeed, this bit from Tucker’s piece caught my attention.

The document bears a striking resemblance to statutorily mandated annual trade report to Congress that I wrote about in March. As I noted then, Trump trade documents are schizophrenic, opening with apocalyptic assessments of the effect of trade before settling into more conventional market access concerns in the body of the report. Today’s addition evinces the same pattern, with an introduction that promises to “stop the bleeding” of U.S. jobs caused by the old policy and then a body that extends the prior approach.

Simply put, it appears as though the administration simply lacks the policy chops to redo its negotiating objectives. It has a few high level staff willing to spit vitriol at the idea of trade, but hasn’t hired the detailed policy experts necessary to implement those changes. What policy experts the administration inherited are likely unenthusiastic about carrying out the radical changes upper level officials have in mind.

To the extent that this is the case, we can all breathe a little bit easier at the prospect of crafting a more peaceful, more prosperous world.

Karl Smith is the Director of Economic Research for the Niskanen Center