The Truth Behind Nafta

It’s a shame a lot of the Journal’s content is still subscriber only, because this opinion piece is something everyone should read and have access to. Furthermore, if it they were totally open, I wouldn’t have to copy the article here verbatim. Rather, I could just write my thoughts and then link to it.

Considering all the Nafta bashing taking place by certain presidential candidates, it is important to understand which actual goods and services are flowing so freely across our North American borders. And what goods are really casuing the United States’ Nafta deficit [highlighted in bold below].

Now I’m not sure if Mr.Engler’s calculations and assumptions are perfect, nevertheless, this piece is definitely eye opening and worth a read.

via. The Wall Street Journal

By JOHN ENGLER
April 21, 2008; Page A15

It is amazing how some presidential candidates are blaming the North American Free Trade Agreement for U.S. job losses. They seem to believe that a substantial part of the three million manufacturing jobs lost since 2000 resulted from Nafta, and that outsourcing of manufacturing production to Mexico and Canada resulted in a huge trade deficit.

Too bad they don’t know that the growth in the deficit isn’t due to manufactured goods, but to oil and gas imports.

There is no question that the imbalance of trade within Nafta has soared since 2000. That deficit has almost doubled to nearly $140 billion in 2007, from $77 billion in 2000. But the deficit in manufactured goods did not displace U.S. factory production.

What the antitrade advocates have been hiding from the candidates (or maybe don’t know themselves) is that almost all of the increase in our Nafta deficit since 2000 has been in increased U.S. imports of energy from Canada and Mexico. In fact, $58 billion of the $62 billion increase in our Nafta deficit has been in energy imports. That’s 95% of the total increase.

We need that oil and gas, and we would rather get it from our friendly neighbors. Surely no one seeks to argue that America would be better off saying no to Mexican and Canadian oil and gas, advocating that we instead import that energy from less secure sources farther from our borders.

Except for energy, though, our trade deficit within Nafta has hardly grown at all – only $3.5 billion from 2000-2007. Our agricultural and manufactured goods sales to Nafta countries have just about kept pace with our imports. That’s a lot more than one can say about the rest of our foreign trade.

While the nonenergy deficit within Nafta has grown less than $4 billion since the job loss started, with the rest of the world it grew over $150 billion. Put another way, the increase in our nonenergy deficit within Nafta has accounted for only 2% of the increase in our global nonenergy deficit since 2000.

Why are the candidates so focused on 2% of our trade problem rather than on the other 98%? Our nonenergy deficit with the high-wage, high-environmental-standard European Union (with whom we have no free trade agreement) grew 10 times as much as it did with Nafta. And of course, with China the deficit grew even more.

None of this is to say that some U.S. factories haven’t closed and their production moved to Canada or Mexico. Certainly that has happened. But in the case of Nafta, that job impact has been almost exactly balanced by increased U.S. production and exports of farm and factory goods.

Suppose our trade with the rest of the world had performed as it did within Nafta. Instead of seeing our nonenergy trade deficit grow over $155 billion, it would have grown only by $25 billion. That would have put us ahead by $130 billion, which sounds pretty good to me.

Nafta has been part of the solution, not the problem. We can do even better if we focus on how to make American manufacturing more competitive than it is.