The Public Policy

Trade Charade

Clinton and Obama are peddling false hope with their proposed NAFTA rollback.

By 3.2.08

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In a bid to woo blue-collar voters in Ohio before Tuesday's presidential primaries, Barack Obama and Hillary Clinton are locked in a rhetorical race to the bottom to trash free trade and NAFTA.

During their February 26 debate in Cleveland, Sen. Clinton denounced the North American Free Trade Agreement as "flawed" and blamed it for closing factories in Ohio and upstate New York. Not to be outdone, Sen. Obama claimed that "if you travel through Youngstown and you travel through communities in my home state of Illinois, you will see entire cities that have been devastated as a consequence of trade agreements" such as NAFTA.

Both pledged to withdraw the United States from the agreement if Canada and Mexico refuse to add "enforceable" labor and environmental standards.

Obama and Clinton are peddling the false hope that tinkering with a 14-year-old trade agreement will somehow bring an industrial renaissance to Youngstown and other Rust Belt cites.

Why? Because the relative decline of those regions dates back to the 1960s and 1970s, decades before NAFTA, when the American economy began to undergo a structural change away from heavy industry toward a more sustainable, information-based service economy.

The real record of NAFTA is overwhelmingly positive. Since it took effect on January 1, 1994, the agreement has delivered its central promise of more trade and deeper economic integration between the United States and our two next-door neighbors.

IN THE DECADE and a half of the "NAFTA era," the U.S. economy has added a net 26 million new jobs. The average real hourly compensation (wages and benefits) earned by American workers has climbed 23 percent, while real household income is up 13 percent.

Home values have more than doubled and stock prices have tripled, boosting real median household net worth by a third. Poverty, crime, and divorce rates are all down significantly since NAFTA.

Even U.S. manufacturing has prospered in the NAFTA era. According to the Federal Reserve Board, real manufacturing output in 2007 was 66 percent higher than before NAFTA. In recent years, U.S. manufacturers have enjoyed record output, revenue, exports, and profits.

Since NAFTA, U.S. manufacturing investment in Mexico has averaged a modest $2 billion a year -- a tiny fraction of the $150 billion or more those same companies invest annually in domestic manufacturing capacity. American factories actually added a net half a million new manufacturing jobs in the five years after NAFTA.

The loss of manufacturing jobs in Ohio and elsewhere since 2000 has not been because of NAFTA, but because of increased automation and our own domestic slowdown. U.S. factories are producing more and better stuff with fewer workers because their workers have become so much more productive.

Behind the trend has been a shift of production down South to non-union, right-to-work states, and up the value chain to more technology-intensive products.

Ohio workers would pay a heavy price for pulling out of NAFTA. Canada and Mexico are the top two markets for exports from Ohio, accounting for more than half of the state's exports in 2006.

According to the Ohio Department of Development, 283,500 workers in the state earn their living in the export sector, with machinery, car parts, aircraft engines, and optical/medical equipment among the leading exports. A trade showdown with our NAFTA partners would put those good-paying jobs at risk.

THE IRONY OF THIS Democratic cat fight over NAFTA is that the agreement was one of the most important policy triumphs of the previous Democratic administration. President Bill Clinton and Vice President Al Gore fought successfully for the agreement, which passed Congress in November 1993 with the support of 102 Democrats in the House.

Hillary Clinton boasts about the robust U.S. economy of the 1990s as evidence of sound economic stewardship, yet she and Obama now reject the free-trade policies that were an integral part of that record.

In contrast to Democratic backpeddling, Republican front runner John McCain has grasped the free-trade banner. Sen. McCain, like all recent Democratic and Republican presidents, understands that embracing global markets is key to America's future prosperity. McCain has compiled one of the strongest free-trade voting records in the Senate, while Obama and Clinton have usually voted against trade liberalization.

Democratic opposition to NAFTA and free trade is not driven by any real facts on the ground, but by special interest politics. Led by the Teamsters and the AFL-CIO, organized labor blames trade for declining membership, even though the share of American workers belonging to unions has been eroding steadily since the 1950s.

Backtracking on NAFTA and other trade agreements will not restore a previous era of glory to organized labor or Youngstown, Ohio. It will only slow America's own economic progress while unnecessarily alienating our closest neighbors.

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About the Author

Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute in Washington.