NAFTA in its current form cannot and should not stand until Mexico receives a fair deal from the United States. I have always conceded that the president’s criticism of the 1994 trade deal was in some regard valid, but now that official renegotiation objectives have been released by the administration, we can see exactly how far economic nationalism has seeped into a trade agreement which was supposed to be mutually beneficial.
If Donald Trump wants to see the promises of NAFTA come to fruition, he must accept that the welfare of Mexican farmers and laborers are not just a critical point that must be made during renegotiation, but perhaps the most critical point.
Mexico, now the United States’ third largest trading partner, is of extreme economic importance to the US. Mexico is America’s largest importer after China, and receives a substantial about of US investment. Knowing this, it would seem a foolish trade strategy to continuously bellow “America First!” and flip the bird to Mexico.
Trump’s statement that NAFTA has “been very good for Mexico” is demonstrably false, and reflects his ignorance of that which he has criticized and lambasted since his campaign began. The deal has not been “very good” for Mexico, and perpetuating this falsehood will not only continue to ensure that Mexico misses out on its piece of the NAFTA pie, but will also put a larger strain on the US economy.
Those of us who listen to the talking points and analysis of NAFTA may find it noteworthy that there is little talk of the plight of the small American farmer. This is because the plight exists south of the border, and is brought about by the same type of anti-free trade mechanisms that have been criticized by Trump and past US presidents.
There has been plenty of noise and chatter about NAFTA’s Chapter 19, the article of the agreement that allows for countries to bring anti-dumping cases to an international tribunal. While the White House is apparently bothered by the dumping of products by Canada and Mexico into American markets, it’s Mexico that should be protesting.
One of the most damaging impacts of NAFTA has been the effect of US corn subsidies. When subsidized corn flooded the Mexican market (dumping), small Mexican farmers became unable to compete with cheap imported corn which was sold at artificially low prices. The result was the destruction of livelihoods for hundreds of thousands of low-income Mexicans. Their choices were to relocate to an urban area and scramble for scarce jobs at foreign-owned factories in Northern Mexico, or try to cross the US-Mexican border.
A debate can be had about the protection of infant industries for the sake of preventing large companies from destroying them before they reach maturity. But the elimination of subsidies is not a form of protectionism. Rather, it eliminates barriers to the creation of a mutually beneficial common market, which has always been the stated goal of NAFTA.
The US, having a stronger welfare state and job-retraining apparatus, will be better apt than the Mexican government to handle unemployed farmers. These farmers can continue to work and import their corn to the United States, which can focus on investing in other industries rather than subsidizing farming. Hugely subsidized US farms have little to no economic benefit considering our southern trading partner consists of large numbers of small farmers.
The result of the cessation of subsidies means cheaper imports from Mexico and more US investment in other domestic industries using money that would have gone to corn subsidies. This investment can create blue collar jobs that will be more durable and independent than subsidy-reliant farm work.
A similar conclusion can be drawn from looking at labor standards. Instead of lobbing vague complaints at the Mexican government about the exploitation of America, the US should make labor protections a centerpiece of the NAFTA renegotiations. This is not simply a human rights concern; the US has publicly made it a goal to eliminate large regulatory differences between the Mexican and American economies. If these common regulations were high labor standards, fewer Mexicans would feel the need to flee their home country. Mexicans being forced from farms into factories will be better off financially and will be able to take better advantage of the cheaper imports flooding into their country, thereby helping retailers and distributors who sell these goods.
Trump’s US Trade Representative Robert Lighthizer said in June: “I think it is not a legitimate competitive advantage to have very low…labor standards.” While this is a promising statement, he should add to that statement that a country cannot develop a competitive advantage if their industries are being squashed by subsidized imports.
Lighthizer will not be renegotiating the deal on his own. Not only will the deal be of incredible political importance to the Trump White House, the Gary Cohns of the world will be watching the process like hawks. Their priority, I presume, will not be labor standards.
If the administration, by some miracle, manages to silence the corporate noise which buzzes around trade deals like flies on rotting fruit, they may begin to look at the deal as an economic equalizer. If one NAFTA country suffers, no one wins. For the White House to mold NAFTA into a deal which offers more benefit to the United States, they may consider putting Mexico first.
Photo: Jim Winstead/Creative Commons