NAFTA Viewed From The Eyes Our Trading Partners

One means of analyzing the effectiveness of a free trade pact is by looking at how our partners view that same pact. Now, this must be done in a sophisticated and nuanced way. In some ways, free trade pacts are a zero sum game and in other ways they help everyone. For instance, many Democrats decry the lost jobs in the manufacturing sector because of NAFTA, but are any of our partners decrying lost jobs in any of their own sectors? If they are, are those lost jobs gains in jobs for American sectors? On the other hand, if consumers in our trading nations are exalting the free trade agreement is that at the benefit of American industries?

This brings me to this editorial from the premier of Ontaria.

For example, a part produced in Ohio could find its way into a car assembled in Ontario, which in turn could be shipped to Europe. Resources produced in Ontario can be sold in the US, turned into products and sold again in the Canadian market.

Canada is the largest trading partner for 36 of 50 US states. Pennsylvania exports more to Canada than its next seven markets combined. Cross-border trade supports 221,500 jobs in Michigan alone. The regional trade relationship is complex, dynamic and, ultimately, good for our shared economy.

A 2004 study in the American Economic Review concluded that, while there was short-term job loss in manufacturing in the early days of Nafta, the lost employment was offset by employment gains in other parts of manufacturing. Overall, wages increased, as did productivity. In fact, labour productivity in manufacturing increased by a remarkable 0.93 per cent annually. Overall, Canada and the US increased their trade with each other, forming a more cohesive North American market.

Since Nafta was introduced, merchandise trade between Canada and the Nafta partners has increased 122 per cent, to $597bn in 2006. In a world where greater economic integration is the order of the day, Nafta has helped preserve competitiveness by pooling our shared strengths and resources.

Now, this editorial does a great job of providing evidence of how NAFTA benefits everyone. It is clear that the view of the premier is that NAFTA has created synthesis between American industry and Canadian industry. In his view, the benefit runs both ways. If auto parts produced in America are combined with those produced in Canada to form a car that is then shipped to Europe, isn't that proof positive that NAFTA has benefitted all nations everywhere?

What is the view from Mexico? Well, let's just say that Mexican farmers hate NAFTA nearly as much as American manufacturing workers.

Cirilo Yanez has been farming sorghum in the sleepy Mexican town of Yecapixtla his whole life, but he expects to be forced out of the business after a new phase of the North American Free Trade Agreement comes into effect on Jan. 1. "

As long as I've been alive, I have been in sorghum, as were my parents and as are my children," said the weathered Yanez, 62, who farms seven acres of the grain in central Morelos state and sells it as livestock feed.

Mexican farmers ride their horses onto the grounds of the Mexican lower house, or Chamber of Deputies, December 10, 2002 at Mexico City's San Lazaro legislative palace to protest the January 1 opening of borders to zero-tariff trade on most farm goods. The farmers are protesting the terms of the North American Free Trade Agreement (NAFTA), which Mexico joined with the United States and Canada in 1992. REUTERS/Henry Romero On the first day of 2003, protective tariffs on imports of sorghum and most other farm goods will disappear under NAFTA and cheaper U.S. imports are expected to flood into Mexico and dominate market share.

Yanez says that even now, with protective tariffs on imports, he and other Mexican producers cannot compete with cheaper U.S.-produced sorghum, which is used in snack and baked products, to produce ethanol and as animal feed.

Mexican farmers, many of whom till small plots with donkeys and follow ancient traditions such as sowing seeds barefoot, cannot compete with U.S. machinery or infrastructure and, ultimately, in price.

If Mexican farmers are being hurt by cheap imports from America, doesn't that benefit American farmers? Thus, if we apply protectionist policies to protect our manufacturing workers won't we also be hurting our farmers as well?

Therein lies the rub, as Shakespeare would say. It is easy to demonize a free trade pact by pointing to one industry that it hurt. You can only do that if you ignore the industries that it helps. If NAFTA is renegotiated, you can bet that Mexico will want extra protections to their farmers just as we would want extra protections to our manufacturers. Thus, that protectionist policy will hurt our farmers at the same time it will help our manufacturers. Of course, it will help our manufacturers at the expense of a more cohesive process that winds up helping everyone. This sort of myopic view is only carried on if you try and demonize the free trade pact by only viewing one industry. A free trade pact will likely hurt some industries and help others. That's because free trade necessarily helps those industries that would enjoy a comparable competitive advantage. In this case, it has become clear that by opening up free trade manufacturing in America was exposed as having a comparative weakness in manufacturing to that of other nations, and at the same time it exposed a competitive advantage in farming.

Thus is the nature of the beast in capitalism and free trade. The nature of free trade is such that countries specialize in those industries that have competitive advantage and look to other countries where their industries have competitive advantage. This should be embraced because as the premier pointed out ultimately that relationship benefits everyone. Unfortunately, some politicians have used that reality to unnecessarily demonize a free trade pact that has ultimately, on whole, benefited more than it has hurt.