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The Long Shadow of NAFTA

The Long Shadow of NAFTA

Neither side of the border has seen the benefits it was promised.

Screen Shot 2024-02-10 at 3.34.01 PM

Credit: Getty Images

The year 1994 marked the beginning of the era of globalization. For a short time after the end of the Cold War, it was unclear what would be the driving theme of the next period in history. Then it emerged: borderlessness. The theme of the new era would be the free movement of goods, people, and capital. In a few short months on either side of January 1, 1994, the European Union was formed; the Marrakesh agreement was signed, creating the World Trade Organization; the Channel Tunnel opened; and the North Atlantic Free Trade Agreement came into effect. 

Hubris was present from the beginning. During the negotiations over NAFTA, union leader Richard Trumka, then of the United Mine Workers of America, later president of the AFL-CIO, asked a Clinton administration official whether he was worried about the effect of free trade on American blue-collar workers. The official said yes, but eventually “wages would start to go up again, and things would even out around the world.” Trumka asked him how long this would take. The official answered, “About three to five generations.”

We are now one generation into this process, thirty years from the start of NAFTA, so we are at a good point to ask: Are things evening out? Is the new equilibrium we were promised any closer, and it is better than the one we had before?

Mexican consumers were supposed to buy our products. Instead, they buy from Asia. Illegal immigration was supposed to go down. Mexico would “export goods, not people,” as the slogan went. Instead, the number of illegal immigrants in the U.S. today is at least three times what it was in 1990 and remittances are a bigger source of revenue for Mexico than its oil industry. New, better paying jobs were supposed to replace the manufacturing jobs that went abroad. Instead, the workers of the Rust Belt were compensated with gig economy jobs in cities where they don’t live.

On the 30th anniversary of NAFTA, its opponents stand vindicated and its defenders are chastened—or at least they should be. In many corners of the left and right, free trade dogma is as strong today as it was the day NAFTA was signed. It is therefore worth looking back to see what exactly went wrong with NAFTA, what made people blind to its flaws, and why its costs proved greater than anyone predicted at the time.

NAFTA was the first free trade agreement to be signed between a first-world and a third-world country. Before that, developed nations had not wanted to subject their workers to such unrestrained competition and developing nations had not wanted to yoke their economies to much larger ones without retaining some levers of control. NAFTA rang the starting bell on a new, more globalized economy. Its impact was not as great as some free trade landmarks that came later, such as China’s accession to the WTO, but it was the first step and the model for what came after, and the national debate it provoked was the most thorough public discussion of the trade issue in modern American history. Winning on NAFTA made easier each subsequent victory for free trade, including those that dwarfed NAFTA in magnitude.

The idea for a North American trade agreement originated, appropriately enough, at Davos. Mexico’s President Carlos Salinas arrived at the World Economic Forum meeting in January 1990 on a mission to persuade Europeans to invest in his country. Unfortunately, the Europeans were more interested in new markets behind the former Iron Curtain than halfway around the world, so he found no takers. But U.S. Trade Representative Carla Hills was also there in Switzerland, and she took the idea for a Mexican trade agreement back to President George H.W. Bush. 

The Mexicans opened negotiations with the Bush team thinking the president was a lock to keep the White House for another term, but by the time the text was finalized in 1992, it was clear the fate of the agreement would likely be decided by his challenger, Bill Clinton. NAFTA had been a major issue in the Democratic primary that year, with California’s Governor Jerry Brown strongly against it. Clinton had avoided taking a firm line either way until October, less than a month before the election, when he said he would support the agreement if protections were added for workers’ rights and the environment. When he entered office in January 1993, getting NAFTA through Congress was one of the items at the top of his agenda.

When the Clinton administration set out to sell NAFTA, the promises they made on its behalf were rosy. It would create the economy of the future. It would halt illegal immigration. It would bring the world closer together, diminishing conflict between nations and spreading freedom to the poor and benighted. Economic interconnectedness became a replacement for the Cold War ideology of the free world. It was not just a global tariff framework. It was something to believe in now that the fight against communism had been won.

This optimism was not always based on deep knowledge. Mexico’s lead negotiator, Jaime Serra Puche, remembered telling Carla Hills about the possibilities for exporting capital goods to Mexico’s southern states. “Imagine, Carla, when you get a $1 billion market in Tabasco!” She replied, “Now, come on, Jaime, don’t you think that is a lot of Tabasco sauce?” In 2020, it was revealed by insiders that Bill Clinton’s most famous prediction about NAFTA’s economic impact, that it would create one million jobs within five years, was completely made up. A speechwriter had put “a million jobs” in draft text as a placeholder, and somehow it made it onto the teleprompter without being corrected.

The fight over NAFTA ratification, as lively as it seemed in the press, was one-sided. Both parties were in favor of it. The Heritage Foundation and the Clinton administration, David Broder and Rush Limbaugh, were all in agreement. An analysis of all the sources quoted in the New York Times and the Washington Post on NAFTA from April to July 1993 found that 68 percent of the individuals quoted supported NAFTA and only 20 percent were against.

Why was the opposition so disadvantaged, given that polls showed they had the public on their side? One reason is that they were outspent. The Mexican government itself spent $30 million on lobbying for NAFTA and hired dozens of former U.S. officials to advocate on its behalf. The pro-business umbrella group USA*NAFTA was also well funded.

The second was that they were handicapped by divisions within their coalition. To put it bluntly, left-wing NAFTA opponents did not want to be seen working with the right-wing ones. Proponents of NAFTA realized early on that painting their opponents as racist against Mexicans was an effective strategy. The National Council of La Raza accused opponents of relying on “smirks, stereotypes, and caricatures.” This line of attack split anti-NAFTA forces down the middle. The two sides not only failed to cooperate, they resisted even being seen as aligned. The Alliance for Responsible Trade, the umbrella group for left-wing opponents of globalization, wrote internal memos highlighting the need for its representatives to draw a “sharp dividing line” between their position and “Pat Buchanan’s racist protectionism.”

The biggest handicap was that the institutions that should have been leading the fight against NAFTA had been captured by the other team. The National Association of Manufacturers had been a voice for domestic producers since its founding in 1895 and thus, unsurprisingly, a consistent voice for tariffs. Its president from 1990 to 2004, however, was neither a manufacturer nor a businessman. Jerry Jasinowski was a Democrat from a union family who was hired away by NAM from a position as an economist in Jimmy Carter’s Commerce Department. As president of NAM, he recruited foreign companies like Toyota and Siemens to join, over the objections of many members who wanted the group to represent American interests. Jasinowski threw NAM’s resources strongly behind NAFTA.

The AFL-CIO, too, elected a new kind of president in the early 1990s when John Sweeney became the first representative of a service employees’ union to lead the group. He was able to launch an insurgent campaign in 1995 to unseat the old guard partly due to discontent with its failure to stop NAFTA. Ironically, the change of leadership would make the labor movement less effective at standing against future expansions of free trade. Service employees don’t worry about their jobs being outsourced to Mexico or China. As with NAM, this led to an odd situation where the people who had the most to lose from surrendering to globalization found that the institutions they had set up to speak on their behalf were no longer in a position to give voice to their concerns.

The Republican Party might be described as another captured institution. It had always been the pro-tariff party. Reagan’s position on trade was nuanced and pragmatic. Then, in the 1990s, the party came under the sway of the neoconservatives, who were as enthusiastic about free trade as they were about foreign adventurism. President George W. Bush himself connected the two issues, saying in a speech at the World Bank that “globalization is, in fact, the triumph of human liberty stretching across national borders.” 

The fact that these were the same people was driven home in 2001, when the Bush administration did not hesitate to use the September 11 attack to promote its free trade agenda. U.S. Trade Representative Robert Zoellick published a painfully tone-deaf op-ed in the Washington Post titled “Countering Terror with Trade” on September 20. As grotesque as it was, the gambit worked: After steadfastly refusing to grant Bush “fast track” trade authority through the spring and summer of 2001, Congress passed it in 2002.

Patrick Buchanan, the co-founder of this magazine, was known for a political agenda based on the three pillars of immigration restriction, sensible trade policy, and an end to needless foreign wars. In his own party at least, it was all the same fight.

So how has NAFTA fared? Before we consider whether it has been on net good or bad, we should state at the outset that the predictions of advocates were wrong. The things they said would happen did not happen.

America’s trade surplus with Mexico was not maintained. In 1993, the Peterson Institute for International Economics predicted in 1993 that U.S. trade with Mexico would reach a surplus of $7 to $9 billion by 1995. In fact, it reached a deficit of $15 billion, a deficit which has only grown since then. The hope that Mexicans would become avid consumers of our exports was dashed by, first, the stubborn failure of their wages to rise and, later, cheaper imports from Asia.

Immigration did not decline. Quite the opposite, NAFTA was directly responsible for much of the explosion in illegal immigration in the 1990s. The cheap Midwestern corn that flooded into the Mexican market put 2 million Mexican peasant farmers out of work. Instead of moving to the cities and fueling the industrialization of their own country, as economists had hoped, they moved across the border. 

One prediction made by NAFTA’s opponents has failed to materialize, and that is that Mexico would take American jobs—but only because China quickly became an even more attractive destination for outsourcers. Between 2000 and 2010, Mexico lost over 1 million manufacturing jobs, particularly in apparel and electronics. It has an overall trade deficit, enjoying a surplus with only one country (the U.S.) and deficits with all its other trade partners. Wages today in Mexico are lower in real terms than they were in 1994.

This has been a problem for many Latin American countries that have sought to improve their economies through openness to trade. As soon as another country offers lower wages or better terms, investment flocks elsewhere. Nicaragua, for example, has cultivated a thriving textile industry and exports billions of dollars’ worth of apparel each year. However, economists warn that the sector “remains vulnerable to the exodus of firms from the country because only a few are Nicaraguan-owned and there has been scant investment of domestic capital.” Apparently it is good to have companies that are tied to your country, rather than seeing it as a place they can pack up and leave when they get a better deal elsewhere.

This is not just true for developing countries. The country to which jobs are outsourced has reason to worry about businessmen who don’t feel any loyalty to their nation—and so does the country doing the outsourcing. That is one of the legacies of NAFTA in the U.S. It helped to create a globalized elite whose fortunes were not tied to the country of their birth, who were happy to see factories move to Mexico and China if that was best for the global economy. In earlier decades, the interests of employers and workers were aligned on matters of trade; both wanted domestic industries strong. In the era of globalization, these interests diverged.

The result, everyone knows. The U.S. lost 5 million manufacturing jobs between 1995 and 2015. Even in advanced technology products, we now have a massive trade deficit. Globalization has not made our manufacturing sector leaner and meaner. Between 2011 and 2022, manufacturing productivity in the U.S. actually declined. To be clear, these dismal numbers are not mainly the fault of NAFTA. The number of jobs lost to Mexico was relatively small; the China shock dwarfs it. Yet NAFTA set off the chain of events that allowed globalization to run free the way it did. It gave the free traders a big win and reshaped the coalitions to their advantage.

There have also been non-economic costs to NAFTA that don’t show up in economic statistics. For one, NAFTA made Mexico fat. The same cheap corn that pushed the farmers off their land flooded grocery stores with processed food and high fructose corn syrup. Coke became cheaper than water. The result was that Mexico’s obesity rate almost doubled; 17 percent of adults are now diabetic, compared to 9 percent in 1990. In 2016, diabetes was Mexico’s leading cause of death. If you believe the online nutrition gurus, NAFTA exported the same obesogenic diet patterns based on massive corn subsidies that have caused Americans to get fatter in the last half-century, far more than our rates of calorie consumption and physical activity can explain. It also gave an economic boost to the same corn producers fueling that dynamic at home.

NAFTA also made Mexico liberal. Today Mexico has gay marriage, gay adoption, and abortion, all things that would have been unthinkable when the agreement was signed. (A Mexican political scientist writing in 1998: “Despite the extent of population pressure in Mexico, the legalization of abortion remains unlikely given the power of the Catholic Church.”) This socially liberal revolution has been accomplished the same way it has been everywhere else, through non-governmental organizations. The 1990s saw an NGO boom in Mexico, due in part to funding from the United States. The lawsuit that led to the 2023 Mexican supreme court decision decriminalizing abortion was brought by a progressive NGO funded by the MacArthur Foundation, the Hewlett Foundation, and the Tides Foundation.

The people harmed by NAFTA had few friends in the halls of power. The elite referred to them as “losers”—as in, free trade has winners and losers, so we should compensate the losers. In fact, looking back at what has happened in the last 30 years, all of us were the losers. American weakness in the face of the Chinese threat will have costs we cannot now foresee. The Rust Belt has incubated social pathologies, such as the opioid crisis, that now stand at every family’s doorstep. In academic discussion of free trade, the standard line is that its benefits are diffuse and its harms concentrated; thus the political process is stacked against free trade because the losers are more organized. In the case of NAFTA, the opposite was true.

The free trade consensus that gave us NAFTA would have gone on unchecked but for two things: Donald Trump and Covid-19. Every president between NAFTA and Trump was a free trader. Obama sought sweeping new trade agreements with the EU and Asia, both which Trump ditched. Trump had been a trade guy from way back, complaining about Japan in the 1980s and later dabbling with Ross Perot’s Reform Party. During the 2016 campaign, he called NAFTA “the worst trade deal in the history of this country” and promised that under his administration “the era of economic surrender will finally be over.”

In office, Trump had many wins on trade, thanks in large part to his U.S. Trade Representative, Robert Lighthizer. In his excellent memoir, No Trade Is Free, Lighthizer boasts that “real family income in the United States rose in the year before COVID-19 by 6.8 percent,” and that “the trade deficit was down, and the bilateral deficit with China was trimmed from the year before in six consecutive quarters.” Even more than these concrete successes, Trump gave America back its sense of agency. No longer would globalization be treated as “the economic equivalent of a force of nature, like wind or water,” as Bill Clinton said. We could seize control of our destiny.

This was a message many Americans were willing to hear after Covid-19. The pandemic threw a spotlight on the precarious nature of global supply chains. If America could not make its own masks, what other vulnerabilities might be lurking in plain sight? Pork prices surged after the pandemic because, as journalist Rana Foroohar explains in her book Homecoming, “the largest pork producer in the United States, Smithfield, is owned by a Chinese company that takes orders from the Chinese government, which understandably wanted to export to China what pork was available during a time of scarcity.” 

The lesson of the Trump years is that resistance to free trade dogmatism in the future will come from the right. The fair-trade left had many victories in the late 1990s, helping to deny Clinton fast-track authority and quashing the hemispheric Free Trade Area of the Americas. Today, the Democratic Party’s base is too wealthy to allow for a repeat of those campaigns.

More ominously, free traders have started to incorporate left-wing language on race into their argument in a way that the left will find difficult to resist. Adam Posen, president of the Peterson Institute, stated on a panel in 2022, “The fetish for manufacturing is part of the general fetish for keeping white males of low education outside the cities in the powerful positions they are in.” In 2023, James Gibney of Bloomberg News accused opponents of the Nippon Steel deal of “racist nostalgia.” Racist? Opposition to free-trade maximalism will require an ability to brush off this kind of rhetoric, which the left today lacks.

Many trade issues loom that the next president will have to face. China is using Mexico as a back door to the American market, especially for cars. India wants to industrialize more but its domestic market is too small, which means it will seek markets elsewhere. The reshoring efforts begun under Trump, many of which the Biden administration wisely maintained, will need continued support. We need a president who can think flexibly about trade instead of being beholden to dogmas set in amber the day the Berlin Wall fell. 

The stakes are high. One of the best pieces this magazine has published was “The Decline of NASCAR” (May/June 2022), about how decisions made at the corporate level alienated racing’s traditional fans in a misguided effort to make the sport more hip and modern. To residents of small towns in North Carolina, it was the same betrayal twice in a row. First the textile and furniture factories closed down, and then the Rockingham Speedway closed down as NASCAR moved races to Chicago, Miami, and Dallas.

The thing is, the corporate suits’ logic made sense: If you close a speedway in North Wilkesboro, NC, and open a new one in Miami, you will have access to a much bigger market. It was a reasonable gamble. It just didn’t pay off. The sport’s viewership has continued to decline. And when the gamble failed, what happened? Did things revert to the status quo ante? No. What was lost stayed lost.

The post The Long Shadow of NAFTA appeared first on The American Conservative.

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