Ghost of NAFTA haunts proposed Pacific Rim trade deal

Protesters rally against the Trans-Pacific Partnership last month in Miami.

By Don LeeStaff Writer

April 21, 2015 4:05 PM PT

Reporting from washington — As lawmakers gear up for a rancorous debate on a bill that would help President Obama secure a massive Pacific Rim trade deal, congressional Democrats and their allies are making the case that such an agreement would be disastrous for American jobs and wages.

For many, Exhibit No. 1 is the North American Free Trade Agreement.

Perhaps more than anything else, the 1993 pact among the U.S., Mexico and Canada has colored perceptions of free trade and points to the difficult battle ahead as the White House argues alongside Republicans that the Trans-Pacific Partnership would be good for ordinary Americans.

Moments after the so-called fast-track legislation was introduced last week to ease passage of a trade agreement, Sen. Bob Casey (D-Pa.) expressed a sentiment typical of many opponents of the bill. It “will pave the way for another NAFTA-style deal that costs jobs,” Casey said, repeating the warning at a Senate committee hearing Tuesday.

Surveys indicate that qualms about NAFTA are pervasive among the public as well, even with those too young to remember it.

“They promised 200,000 jobs, and we lost millions,” said Michael Barnett, 35, a Fontana hospital worker who flew to Washington with his steelworkers union last week for an anti-fast-track rally outside the Capitol.

Former President Clinton, who pushed NAFTA through a bitterly divided Congress, sold the agreement partly by saying it would create 200,000 jobs a year for Americans. The estimate, derived from experts at the Peterson Institute for International Economics, proved to be hype.

At the same time, claims from the other side that the U.S. would lose millions of jobs to Mexico — the “great sucking sound,” as presidential candidate Ross Perot put it in 1992 — turned out to be overblown as well.

To be sure, soaring imports from Mexico widened the U.S. trade deficit and contributed to factory closures and dislocation of workers. By Public Citizen’s tally, more than 845,000 U.S. workers were approved for federal aid because their jobs were deemed lost to imports from Mexico and Canada in the 20 years since NAFTA went into effect at the start of 1994.

Still, it’s difficult to say precisely how much of that was directly caused by NAFTA. For one thing, trade among the three nations was growing even before the agreement.

The effects of NAFTA were further blurred when China joined the World Trade Organization in 2001, redrawing the world’s production map.

“It’s almost impossible to isolate the impact of a trade agreement,” said Thea Lee, the AFL-CIO’s deputy chief of staff. “It’s more of an art than science.”

“NAFTA accelerated and intensified a trend already in place,” Lee said. “It isn’t like NAFTA invented outsourcing to Mexico.”

While industries such as textiles, apparel and automotive took some of the biggest hits, the Congressional Research Service concluded last year that overall, NAFTA’s net effect on the U.S. economy during the last 20 years was relatively small.

An earlier Congressional Budget Office report, released a decade after NAFTA, estimated that the accord added “probably no more than a few billion dollars, or a few hundredths of a percent,” to the annual U.S. gross domestic product.

Most studies analyzing the effect on the Mexican economy also show only a modest gain. NAFTA didn’t narrow the income disparity between Mexico and the U.S., as policymakers argued it would. Nor did fears materialize that the agreement would turn Canada into an appendage of the U.S.

Richard Freeman, a Harvard University labor economist, has observed that both proponents and opponents tend to exaggerate the effects of trade on economies and the labor market.

Freeman said one reason is that both sides may be trying to attract the public’s attention. The harm, he said, is that it gives the public and policymakers an unrealistic view of the role of trade in economic development.

“It led some to see trade as the solution to problems, when at most it is a start to solutions,” Freeman wrote in a 2003 paper on trade wars that he said was just as applicable in today’s debate. “It led others to see trade as the star villain when in fact it is a bit player.”

Of course, trade policies involve more than economics.

Obama has cast the 12-nation Trans-Pacific Partnership as a key part of strengthening America’s leadership and strategic alliances in the world’s fastest-growing region, where China is a rising competitor. The president said he wanted to make sure that the U.S., not China, writes the rules of the global economy.

China isn’t a party in the talks, although it could later join. For now, negotiations involve the United States, Japan, Canada, Australia, Mexico, Malaysia, Singapore, Chile, Peru, New Zealand, Vietnam and Brunei. These countries account for a combined 40% of the global economy, but the effect of an agreement would be blunted by the fact that the U.S. already has free-trade deals with six of them.

The U.S. doesn’t have a pact with Japan, whose large market presents some of the biggest new opportunities for American businesses. But the two sides have been stuck on thorny issues over auto and farm tariffs. With the prospect of fast-track authority improved, the Obama administration would like to announce a breakthrough when Japanese Prime Minister Shinzo Abe visits Washington next week.

The White House, drawing on a lesson from NAFTA, has been careful not to quantify how many jobs the Pacific Rim pact might create. Instead, administration officials have framed the economic argument in terms of today’s debate on the fraying middle class, saying that the deal would “support” an additional 650,000 jobs and that such trade-related positions pay 15% or more than the average U.S. wage.

“There’s no path to middle-class prosperity if we don’t open these Asian markets,” said Jim Kessler, senior vice president at Third Way, a centrist Democratic think tank that supports Obama on the Trans-Pacific Partnership.

The U.S. has signed 17 trade deals since NAFTA, most recently with South Korea. Kessler said these have generally turned out much better than NAFTA, though many dispute this claim.

Kessler knows it won’t be easy to win over many Democrats because of the “hangover from NAFTA.”

“The feeling is that if you worked on the factory floor, NAFTA did not help you and may have hurt you,” he said.

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