Nafta Was Good for the U.S. and Mexico … The North American Free Trade Agreement, Donald Trump said on Wednesday, “has been a far greater benefit to Mexico” than the U.S. Just minutes before, Mexican President Enrique Pena Nieto, standing by Trump’s side in Mexico City, said Nafta had done both countries “a lot of good.” -Bloomberg
Why would anyone who believes in free-markets argue for the efficacy of NAFTA? There must be another reason to bring this up.
Supposedly, the justification is that Trump mentioned NAFTA as a negative and this provides the impetus for this editorial to defend NAFTA. We’ll get to a more likely reason below.
To be fair, the editorial mentions that both the Mexican President and Trump agreed the “22-year-old trade deal is long in the tooth and could be modernized.”
Trump called for improved pay and working conditions “to create better results for both countries.” And he said a “strong, prosperous and vibrant Mexico” is in the best interest of the U.S. This was progress.
The point here is that Trump may be softening his views slightly, as he may have had with immigration, suggesting that if an illegal immigrant had spent 20-30 years in the states, he or she might not have to return to Mexico.
The editorial slams Trump as an “old-fashioned mercantilist [whose] approach to trade … has populist appeal but that most economists long ago rejected.” It defends on NAFTA on numerous grounds.
… The jobs lost to Mexico over a 20-year period amount to less than 0.1 percent of that turnover.
… By looking only at the trade deficit with Mexico, Trump also ignores other economic gains from Nafta. Exports to Mexico have risen tremendously — they were only $42 billion in 1993.
… That increase has come in part from Mexicans’ higher standard of living (because of Nafta).
… Nafta has also helped make companies more competitive. When U.S. companies must compete against rivals from other countries, they have to find less expensive, more innovative ways to make quality goods, or else lose market share.
… American-made cars are a lot better now than before the Japanese invaded the U.S. auto market, for example … U.S. also can compete more aggressively on price with European and Asian rivals.
To sum up, NAFTA has enriched Mexico while forcing large US manufacturers to upgrade their production and quality. But it’s too bad that NAFTA has enriched various industrial classes, as Mexico is a corrupt country at all levels of government.
Absent such prosperity, the natural repugnance that many Mexicans feel toward their authoritarian and irrational government might already have resulted in its toppling or at least its significant adjustment.
Here from Forbes in late 2014:
Mexico Among The World’s Most Corrupt Nations … With allegations of corruption in government, politics, business and banking emerging throughout the year, corruption was one of the most pervasive issues in Mexico in 2014.
It came as no surprise, therefore, that the country scored worse than previously in the year-end corruption perceptions report by Transparency International released December 3rd. With a score of 35 on a scale of 0 (highly corrupt) to 100 (very clean), Mexico ranked 103 among 175 countries in the group’s Corruption Perceptions Index, which ranks countries and territories based on how corrupt their public sector is perceived to be.
As for the upgrades that NAFTA has forced on US manufacturing, this assumes that large corporate entities provide a “normal” industrial model. But as we’ve noted many times, large corporations are a product of US Supreme Court decisions involving corporate person-hood, intellectual property “rights” and central bank fiat money printing.
Multinationals and large corporations are thus the result of judicial force. A more normal model for industry would be flexible, modest-sized limited partnerships working together to produce what was necessary.
In the US, for instance, cars might still be manufactured around the country and the quality of the autos would be much improved because of regionalism and smaller size of manufacturers.
So we can see how Bloomberg’s assumptions about NAFTA are colored by ignorance of how American industry is manipulated into giganticism.
Meanwhile, the article’s triumphalism regarding vast regulatory projects (NAFTA) ignores the reality that these structures help “buy off” portions of the middle class and upper class that might otherwise jettison Mexico’s corrupt political system.
The article concludes with the thought that real improvements to NAFTA would come by bringing “Mexican environmental and labor regulations into line with those of the U.S.”
Insult, as we can see, is added to injury. Since Mexican industry has benefited (inordinately so) from NAFTA, the way to reduce the artificial advantages is to inflict a destructive regulatory regime upon it. Make the industrial environment in Mexico, in other words, as terrible as it is in the US.
And now for the real reason this editorial was penned: It probably has to do with the upcoming determination to impose a North American Union on Mexico, Canada and the US.
NAFTA, you see, is to be held up as an example of how vast regulatory treaties “improve” industrial environments. The more comprehensive the regulation, and the more centralizing its impact, the more we are supposed to approve of its results.
Conclusion: Of course from a libertarian standpoint we do not support regulatory forces that expand authoritarian control and force vast regions to conform to the industrial dictates of tiny elite groups. Marketplaces if left to themselves will provide the prosperity that titanic industrial regimes cannot hope to offer.