Politics & Policy

No, Mr. Trump, NAFTA Was Not a ‘Bad Deal’

(Shannon Stapleton/Reuters)

History will note that on the eve of his victory as the presumptive presidential nominee of the Republican party, Donald Trump said something crazy. You might think it was his surprising and repeated assertion that his main rival’s father “was with Lee Harvey Oswald prior to” assassinating JFK. A bold claim, I admit, but allow me to suggest that an even crazier statement was Trump’s assertion that the North American Free Trade Agreement (NAFTA) “is the worst economic development deal ever signed in the history of our country.” He continued: “Trade deal, I guess you’d call it, the worst trade deal ever signed in the history of our country — it’s cleaned out vast portions of our manufacturing businesses and more.”

Populism is generally hostile to the very idea of international trade, and NAFTA in particular has become a scapegoat for every economic ill since it was enacted on January 1, 1994, more than 22 years ago. Surely one of the reasons is that its creation was bipartisan: It was initiated by President George H. W. Bush and signed into law by President Bill Clinton. NAFTA was enacted by a bipartisan vote in the Senate (61 to 38) and the House of Representatives, where supporters included 132 Republicans and 102 Democrats. In hindsight, this means any politician can bash it. But the main reason seems to be that the public is incessantly misled into believing that the three-nation deal between Canada, Mexico, and the United States was some kind of “development deal” that aided Mexicans at the expense of American workers.

Hence, people think it’s a bad deal. Dumb negotiators! Notice how Mr. Trump incorrectly perceives economic agreements as business deals, as if treaties among allies are zero-sum business negotiations. I don’t blame the man. He’s a world-class real-estate developer, after all. His most famous book is The Art of the Deal, for Pete’s sake. The deal is the lens through which Trump makes sense of the world. It is a distorted view, but there it is. The distortion is abetted by a cult of negotiation that is the central organizing principle of trade officials in Washington, D.C., and in other global capitals.

From the point of view of principles — economic or libertarian — the best kind of trade deal is no deal at all. Unilateral disarmament: Let your people consume. Tear down the trade walls, regardless what other countries foolishly do to hinder their consumers.

Trump focuses public fury at specific companies that have moved factories from here to there, outsourcing good manufacturing jobs. Indiana, you should appreciate, is the state with the highest concentration of manufacturing jobs. During the past week, Trump relentlessly attacked Carrier, a major manufacturer of air-conditioners, for relocating operations from Indiana to Mexico. This is an open wound right now in the state. Carrier followed through on its February decision (which will cost 2,100 Hoosier jobs) with official letters on April 26, March 8 (after meeting with both U.S. senators), and March 2 (after meeting with the governor).

#share#What gets totally lost in the populist focus on anecdotes such as the Carrier story are three much larger trends. First, the U.S. has added 31 million payroll jobs since 1994, or 29 million workers (depending on which methodology one uses). Second, average hourly earnings, adjusting for inflation, are 43 percent higher than in 1994. Third, U.S. manufacturing output has reached record highs, and part of the reason is that so much global trade consists of intermediate goods in fantastically efficient supply chains.

You may have read about Trump’s complaint that China is “killing us” because of bad trade deals, but he also complains about Japan, one of our closest allies. Trump seems unaware that the U.S. has no trade deals at all with China; nor does he seem to know that the Trans Pacific Partnership does not include China. Trump is even questioning trade with our friends in Canada, which is like complaining about jobs being “lost” to Oregon.

Today, America imports about $10 billion worth of goods from Japan every month, while exporting $5 billion, yielding a 2-to-1 trade deficit in goods. So? As our patron saint, Adam Smith, wrote centuries ago, “Nothing can be more absurd than this whole doctrine of the balance of trade.” Has protectionism helped Tokyo? After decades of such trade imbalances, America has prospered while the Japanese economy has stagnated. Today, output per person is 20 percent higher in the U.S. than in Japan.

What would a better deal be? That’s the question.

Trump promises a return to tariffs. He also promises a wall with Mexico, penalties against profitable American companies, skimming foreign remittances, and more. Trump does not mince words, and you have to respect his forthrightness. What each of these solutions has in common is a heavy-handed government that imposes its will at the price of consumer freedom.

What right does a White House staffer have to tell you what you can buy and the extra price you have to pay if you choose the wrong product? Your freedom to trade — to buy what you want — is what’s at stake when anti-traders get rolling. They say it’s about protecting producers, but that is not how trade barriers work. Hugo Chavez and Joseph Stalin put up huge trade barriers and guess how many jobs that helped Venezuela and the Soviets create? Ni odnogo, as they say in Russian. Not a single one.

#related#Yesterday, I asked Michael Boskin, former chief economist under President Bush in the early 1990s and the godfather of lowered trade barriers in North America, how he feels when NAFTA is used by politicians as the scapegoat for economic anxiety. He reminded me that faith in free trade waxes and wanes. The failure of tariffs is a constant in history, one that each generation demands to relearn. He asked: Remember the Corn Laws in 19th-century Britain? Remember the trade barriers among the states after the 1776 revolution that inspired our free-trade Constitution in 1789? The American Revolution in 1776 was inspired by the British Tea Act of 1773. It was the ultimate trade war: for freedom and against tariffs. How many young Sanders or Trump voters realize that?

Ni odnogo

— Tim Kane is a research fellow at Stanford University’s Hoover Institution and has twice served as a senior economist on the Joint Economic Committee of the U.S. Congress. He is the co-author, with Glenn Hubbard, of Balance: The Economics of Great Powers from Ancient Rome to Modern America.


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