by Matthew Rooney
The U.S. economy has grown because of NAFTA. Scuttling it now would do grievous damage.
The ongoing renegotiation of NAFTA is a critically important issue for the vitality of the American economy and, ultimately, for the security and prosperity of our people. Getting it right requires a clear understanding of the stakes. Thanks to NAFTA, the United States is one of the most competitive economies in the world — in a class with Germany and Singapore — and leaving China, Russia, and India behind. Thanks to NAFTA, the United States has experienced proportionately stronger economic growth and job creation than other major economies. And, thanks to NAFTA, the United States enjoys significant power to shape the rules and compete on global markets.
If NAFTA is terminated or renegotiated to reduce market opportunities, the U.S. position as having the most competitive and thriving economy in the world will be jeopardized. Depending on the response from Canada, Mexico, and other trading partners, we would likely see growth stagnate, employment decline in some sectors, and our global clout diminish.
Those are the stakes.
Yes, NAFTA can be strengthened, but focusing on our trade balance is misguided.
NAFTA was created in 1992 in a post-Cold War global economy. The United States used NAFTA to establish a set of basic principles that were designed to promote national prosperity by: eliminating tariffs and formal barriers to trade; mandating nondiscriminatory treatment of foreign and domestic goods and services; protecting patents and other intellectual property; enforcing legal and regulatory transparency; and standardizing labor rights and environmental protections. The approach established agreed-upon disciplines on government interference in the market and created a level playing field with clear and transparent rules.
Recognizing that the American economy would not prosper if it tried to compete with less-skilled, low-wage competitors, Washington opened markets with North American neighbors to make the United States more productive and more competitive.
With this in mind, NAFTA was designed to foster the emergence of regional supply chains. Those supply chains, of course, have moved some highly labor-intensive segments of manufacturing out of the United States. At the same time, those supply chains also create American jobs in the higher value-added segments of manufacturing: research, design, advanced manufacturing, marketing, and management. It is said that the United States has lost 700,000 jobs since 1993 due to NAFTA; maybe so, but total private sector employment in the United States increased by over 30 million jobs during that same period. In the first half of 2017 alone, the U.S. economy created nearly 1.1 million new jobs.
In addition to driving job creation, these supply chains are the key to our global competitiveness. The George W. Bush Institute’s North America Competitiveness Initiative has encouraged the NAFTA partners to strengthen our supply chains: better cooperation to ensure that our borders are secure and efficient; a regional approach to workforce development to enhance productivity and wages; a tripartite, public-private dialogue on strategic manufacturing sectors that would produce more investment and stronger growth.
We have to be realistic. The global economy will not spontaneously organize itself to foster the prosperity and security of the United States. That will take American leadership focused on opening markets and creating the conditions for our economy to grow and create jobs. Stepping back from NAFTA would reduce global competitiveness, growth, and employment in all three countries, and do lasting harm to America’s prosperity. This harm would be magnified as China, the EU and other players act to tilt the global playing field in their favor. That’s no way to put America first.
Matthew Rooney is the director of economic growth at the George W. Bush Institute.