The NAFTA Question
April 5, 2008
For the few weeks before the looped YouTube videos of Rev. Jeremiah Wright shifted half of the Democratic Presidential coverage to racial matters (the other half of the coverage being focused on the sinking economy), the topic of the talk was the North American Free Trade Agreement (NAFTA). The trade agreement, which was put into law by President Clinton in 1993, restricts obstacles that corporations used to face when they moved their goods between Mexico, the U.S. and Canada. It essentially made free trade easier, prompting many U.S. corporations like General Electric to relocate across the border and hire Mexicans at lower pay (starting pay for a Mexican engineer at GE is equal to one-third of a U.S. salary).
Upon NAFTA’s inception, major trade unions were immediately against it, arguing that it would result in a loss of U.S. jobs as corporations moved to cheaper countries. By 1995, economists at the Institute for Policy Studies concluded that NAFTA had already cost a loss of 10,000 U.S. jobs. Today, since NAFTA has been enacted, America’s deficit with Mexico has climbed from $10 billion to $74 billion while the U.S. has lost 3 million manufacturing jobs.
In the February’s Ohio Democratic debate, both Hillary Clinton and Barack Obama spoke out against NAFTA, promising they would at least renegotiate the trade agreement with Canada and Mexico if elected to the White House. Soon after, CTV News reported that Obama’s chief economic advisor, Austan Goolsbee, told Canadian ambassador to the United States Michael Wilson this:
“Don’t worry. It’s just campaign rhetoric. Don’t take it seriously.”
While the Obama campaign claimed the story wasn’t accurate, Goolsbee refused to affirm or deny its authenticity.
What’s true is that as recently as last October, Obama was supporting a NAFTA expansion to Peru known as the United States-Peru Trade Promotion Agreement, stating:
“The Peruvian agreement contains the very labor agreements that labor and our allies have been asking for.”
Unfortunately for him, nearly all major labor unions opposed this expansion. Some of them included the Change to Win labor federation and its affiliates, the League of United Latin American Citizens (LULAC), Oxfam and plenty AFL-CIO affiliated unions. In his 2004 Illinois Senate campaign, Obama stated that NAFTA was beneficial to the U.S. and claimed it brought great benefits to his state.
Similarly, during that same year, Hillary Clinton said NAFTA had been “good for New York and America.” It’s actually a logical statement coming from her perspective, since her husband saw it as a big accomplishment of his presidency when it was first passed. In those days, Hillary’s support of the trade agreement was evident in how she hosted a pro-NAFTA meeting, helped the White House block labor and environmental opposition, and held meetings to brainstorm means for its congressional approval.
The message from this is all too clear : Obama and Clinton are Washington politicians, nothing more, nothing less. Corporatized interests in Washington are just too great to allow a candidate like Dennis Kucinich, whose pro-labor voting record actually matched up with his pro-labor rhetoric, anywhere near the White House. My guess is that we’ll continue to see more and more decreased free trade regulations as time goes on. But if the recent booing of President Bush at a Washington Nationals game tells us anything, it’s that people are discontent with Washington. Or maybe they went to the baseball game to briefly forget about the troubles of the world and saw the last person on Earth they wanted to see. Regardless of the reasoning, I can only hope this booing will broaden out and soon greet every dishonest politician. But that’s probably just wishful thinking.
Tags: Barack Obama, Hilllary Clinton, NAFTA, politics
Comments & Discussion
As near as I can tell, Obama knows nothing about economics. Did I read he wants to quadruple the Capital Gains Tax? Good idea. Kill all investment. Economy stagnates. Great depression looks tiny. The truth is beginning to come out that Obama is just a hack with a Marxist agenda. See:
http://acimmessages.blogspot.com/
A Marxist agenda calls for a proletarian revolution against the government, which is far from anything on Obama’s agenda. If his pro-free trade, pro-military, pro-war record is indicative of anything, it’s that he’s one hell of a capitalist.
NAFTA has indeed been a bad deal for the U.S. because of the very high population density throughout Central America. (Free trade with Canada, a nation less densely populated than the U.S., has been very beneficial to the U.S.) Free trade with Peru, a small nation with low population density presents no threat to the American economy.
Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the weathiest nation on earth – its preeminent industrial power – into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It’s a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, is now approaching $9 trillion. What will happen when those assets are depleted? Today’s recession may be just a preview of what’s to come.
Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.
Clearly, there is something amiss with “free trade.” The concept of free trade is rooted in Ricardo’s principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn’t consider?
At this point, I should introduce myself. I am author of a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” To make a long story short, my theory asserts that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.
This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density – rising unemployment and poverty – are actually imported when a nation attempts to engage in free trade in manufactured goods with a nation that is much more densely populated. Their economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to our healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.
One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. (Mexico is number 12 on the list, ahead of number 19 China.) Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!
Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. In fact, our largest per capita trade deficit in manufactured goods is with Ireland, a nation twice as densely populated as the U.S. Our per capita deficit with Ireland is twenty-five times worse than China’s. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was already a proven failure to a country with one sixth of the world’s population.
Ricardo’s principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it is a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.
If you’re interested in learning more about this important new economic theory, then I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in the blog discussion and, of course, buy the book if you like. (It’s also available at Amazon.com.)
Please forgive me for the somewhat “spammish” nature of the previous paragraph, but I don’t know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.
Pete Murphy
Author, Five Short Blasts