Democrats Need to Embrace NAFTA

John Fout

On the Democratic campaign trail, the North America Free Trade Agreement (NAFTA) has become a punching bag representing all of the ills of free trade, responsible for destroying middle class jobs.

The populist rhetoric reached a fever pitch in Ohio this week, even though both Sen. Hillary Clinton (D., N.Y.) and Sen. Barack Obama (D., Ill.) have spoken favorably of NAFTA at times and recently supported the Peru Free Trade Agreement.

Democrats and their union supporters have blamed NAFTA for job losses in sectors like manufacturing. Clinton has made strong statements such as, "We need a trade timeout," or "I'm fighting to change NAFTA." And Obama has echoed John Kerry's 2004 convention speech by saying:

I talked to workers who have seen their plants shipped overseas due to consequences of poor deals like NAFTA that have literally seen equipment unbolted from the floors of factories and shipped to China.

But is NAFTA really to blame?

The Congressional Research Service noted in 2004 that four studies had been released studying the economic effect of NAFTA, on its 10-year anniversary. The studies include the Carnegie Foundation, the World Bank, the Congressional Budget Office, and the United States International Trade Commission.

The CRS found that all of the studies debunk a variety of myths surrounding NAFTA, including:

It had a very modest effect on trade growth between the U.S. and Mexico.
It had nothing to do with widening trade deficit between the U.S. and Mexico.
It slightly increased growth and productivity in the U.S.
It had little or no effect on aggregate employment in the U.S., and
It had a small effect on real wages.

Democratic demagoguery on NAFTA proves to be misplaced. Leonardo Martinez-Diaz, a Brookings Institution expert on international finance, says: "NAFTA has become shorthand for the general effects of trade and globalization." The markets in both China and India dwarf the economies of Canada and Mexico. Companies like Wal-Mart (symbol Quote) and Target (symbol Quote) depend almost wholly on manufacturing in China.

Martinez-Diaz went on to say that that the Democrats use "clever rhetoric" on NAFTA. On the one hand, they express concern for the bitter sentiments of loss felt by American workers, and on the other hand signal to those who favor free trade that they have no plans to move away from free trade agreements.

The Democrats' nuanced position presents a problem in the general election, because like their case on taxes, Republicans have a simpler, emotional appeal.

On free trade, Sen. John McCain (D., Ariz.), the presumptive Republican nominee, will lambast the Democrats for flip-flopping: "They voted for free trade before they opposed it."

He will argue that populist bashing of free trade leads to protectionism and tariff wars. Protectionism has been strongly viewed as a negative economic force, as some have blamed the Smoot-Hawley Act of 1930 for causing the Great Depression.

This will hurt the Democratic nominee, as a recent Gallup poll showed that the economy has supplanted Iraq as the top issue in the campaign, with 34% saying the economy was most important, whereas 24% said Iraq topped their list.

Another Rassmussen poll should worry Barack Obama. It shows that voters trust McCain more on both the economy and Iraq, though most recent polls have Obama nudging McCain overall.

Changing the NAFTA Debate

The Democrats need to stop the negative attacks on NAFTA and focus on a brighter future. Brookings' Martinez-Diaz says: "Free trade always creates winners and losers. The Democrats must force those in favor of free trade to recognize something has to be done to help the losers."

By way of example, Timothy Canova, professor of international economic law at Chapman University School of Law, said via email that freer trade in agriculture, combined with U.S. farm subsidies, has contributed to more than 600,000 farm families losing their livelihoods in Mexico.

"This, of course, contributes to the increase of illegal immigration from Mexico to the United States," Canova says. "Likewise, there are certainly factories in the U.S. that have been closed down as a result of freer trade with Mexico, and even more so with China."

Both Canova and Martinez-Diaz suggest that domestic reforms require additional aid for the losers.

The assistance is supposed to come through the Trade Adjustment Assistance (TAA) program offered by the federal government. Canova says TAA was cut first under Ronald Reagan and remains under funded. Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee, wants TAA to be a top priority of any trade agreement:

"This task, and no other, must be our nation's trade policy priority. ... I simply cannot support or consider moving these agreements in the Senate, until we realize the goal of expanded and reauthorized Trade Adjustment Assistance."

Democrats have pushed for innovation in new areas, such as alternative energy, and must continue the focus on jobs for workers. Kevin Baker recently reported on mutual funds and companies that would benefit from the Democrats, stocks like Solar One and Fuel Cell (FCEL Quote).

Clearly, other issues prove important on the NAFTA debate. Diaz-Martinez commented: "NAFTA was an early trade agreement compared with those before Congress now. It lacked many of the environmental and labor enforcement protections." Canova agrees that NAFTA should be reformed to reflect changes in TAA and the other issues, which the Democrats discussed during their debate on Tuesday night.

But Democrats have to careful not to get trapped in a complex debate. They should drop the trade bashing of NAFTA and globalization, moving their focus instead to a simple message of creating jobs for a bright American future. Nuanced opinions cannot defeat a Republican come November.

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