Fair Weather Free Trader

Campaigning in Wisconsin, Ohio, and Texas, Obama touted his opposition to NAFTA and pledged to “renegotiate” the 1993 treaty between the United States, Mexico, and Canada that established the largest trading bloc in the world. It was, of course, a president from Obama’s party, Bill Clinton, who signed NAFTA into law over opposition from trade unions and protectionists in the Democratic Congress. But that was then. During last week’s Democratic presidential debate, Obama went so far as to say that, as president, he would use “the hammer” of a “potential opt-out” to “ensure that we actually get labor and environmental standards that are enforced.” His opponent, Hillary Clinton, agreed completely. One of her husband’s signal achievements is now just a bag of sand to jettison from her deflating balloon.

Obama claims that NAFTA was “oversold” and vows to “stand firm” against similar agreements that “undermine our economic security.” The American worker deserves nothing less, we are told. But the American worker actually deserves a great deal more: He deserves a forthright explanation of the tangible benefits of free trade. Even Senator Change-We-Can-Believe-In knows these benefits are real. Obama has explained in the past that it is “not realistic to expect to renegotiate NAFTA” and that Americans “benefit enormously from exports and so .  .  . have an interest in free trade that allows us to move our products overseas.” In a John Kerry-like straddle, he acknowledged in 2005 that a trade deal modeled on NAFTA–the Central American Free Trade Agreement (CAFTA)–was “probably a net plus for the U.S. economy” .  .  . before voting against it.

That vote may be seen as the beginning of his turn toward protectionism. The way Obama tells it, however, he has borne witness to the chaos wrought by free trade for some time–a quarter century, in fact. “When I first moved to Chicago in the early ’80s,” he said last week, “I saw steelworkers who had been laid off of their plants,” painful evidence that the “net costs of many of these trade agreements, if they’re not properly structured, can be devastating.” What trade agreements Obama blames for 1980s deindustrialization, he did not say; NAFTA was far off in the future when he showed up on the South Side. And President Reagan had in fact imposed steel tariffs to protect U.S. makers. Productivity gains resulting from improved technology were, however, allowing fewer workers to produce more steel.

More likely, once the son-of-a-millworker dropped out of the Democratic contest, the friend-of-the-steelworkers saw an opening and seized it.

And so it was that Barack Obama–Columbia ’83, Harvard Law ’91–became a populist. His rhetoric is increasingly heated. In a “major economic address” in Janesville, Wisconsin, on February 13, Obama said that “decades of trade deals like NAFTA” included “protections for corporations and their profits,” but none for “our workers,” who have “seen factories shut their doors and millions of jobs disappear.” In Youngstown, Ohio, on February 18, Obama said “NAFTA didn’t put food on the table.” On February 24, in Lorain, Ohio, he said “one million jobs have been lost because of NAFTA, including nearly 50,000 jobs” in the Buckeye State.

That “one million jobs” figure should not be overlooked. It has become Obama’s mantra. It is, upon close inspection, the most specific piece of evidence to which he can point when he claims that NAFTA has been “devastating.” And it is almost certainly bunkum.

The figure comes from the folks at the left-wing Economic Policy Institute. In a 2006 “briefing paper” entitled “Revisiting NAFTA: Still Not Working for North America’s Workers,” the institute’s director of international programs, economist Robert Scott, wrote that “growing trade deficits with Mexico and Canada have displaced production” that would have supported “1.0 million (total) U.S. jobs since the agreement took effect in 1994.” The jobs number is a hypothetical, in other words. And a silly one at that. Scott assumed that the trade deficit between the United States, Canada, and Mexico would have remained frozen at 1993 levels had it not been for NAFTA. In Scott’s view NAFTA is solely responsible for the trade deficit between the three countries. And the trade deficit has been solely responsible for job loss. Nothing else has mattered.

Economists call this a “partial equilibrium” analysis. By assuming that everything else stays the same except for imports, you can plug numbers into U.S. Commerce Department models and see how many jobs those imports–had they been produced in domestic factories–might have sustained. Whatever its uses as an analytical tool, however, it is not a good picture of the real economy. Most economists agree that other factors–the business cycle, productivity gains, monetary policy–affect unemployment much more than trade. And most economists point to several other studies that show NAFTA contributing small but real job gains to the United States.

Even if Obama were right about the “one million jobs lost,” he would still be distorting reality; that number is trivial in comparison with the number of jobs gained in the years since NAFTA’s implementation. Today there are roughly 150 million Americans in the workforce; 146 million of them are employed. Approximately 26 million of those jobs were created after Clinton signed NAFTA. This is an enviable achievement. By almost any measure, the economies of the United States, Canada, and Mexico have improved since they agreed to NAFTA. The U.S. economy has grown by more than 50 percent. Productivity has increased. The manufacturing sector has lost jobs, but it is producing more goods than it was in 1993. And while consumer prices have been rising in recent months, the average annual inflation rate is down from where it was in 1993. So is the unemployment rate. Of course it would be wrong to credit NAFTA for all this good news. Just as it is wrong to assign blame to NAFTA for all of our economic woes.

There are many ways to measure the success of trade agreements. You can look at employment numbers, measure growth in the gross domestic product, or investigate whether a particular agreement increased comity between nations. NAFTA looks good by all these measures. Prior to NAFTA Mexico was a political and economic basketcase. It had widespread political instability and a history of nationalizing industries. Today, in nominal terms, Mexico’s GDP is about twice what it was when NAFTA came into being. Mexico’s inflation rate is lower than our own. The (still high) poverty rate has fallen. Mexico was spared the worst effects of the 1998 international monetary crisis. Mexicans have broken the PRI’s stranglehold on political power and elected two pro-American reformers to the presidency. Democrats like Obama say they want to emphasize America’s influence via “soft power” rather than the projection of military force. Is there a surer way to improve our ideological and cultural appeal than through free trade with our neighbors?

All is not well with the global or the U.S. economy–it never is. The subprime mortgage collapse and global credit contraction continue. The skills revolution that has made a graduate degree more important than union membership has increased inequality. Rising health care costs have eaten up wage gains. The presidential candidates of both parties need to deal with what one writer has called “the growing insecurities of the American worker.” That writer goes on to say that unless we find “strategies to allay those fears” and send “a strong signal to American workers that the federal government” is “on their side,” then “protectionist sentiment would only grow.”

Barack Obama was correct in his assessment when he wrote those words in 2005. Mangling the facts, playing off peoples’ anxieties, and exploiting fear of foreigners do not lessen protectionist sentiment. And they do not make the American economy any stronger.

–Matthew Continetti, for the Editors