Not that lowering trade barriers is a bad idea. Trade does wondrous things for an economy: it forces business to hold costs down and get quality up, and it gives consumers greater choice and lower prices. Yes, imports can eliminate jobs and drive companies into bankruptcy, but would we be better off if industry didn’t face pressure to become more efficient? U.S. automakers have gone through wrenching change, but the result of Japanese competition is that Detroit makes far better cars with far fewer workers than it used to. That greater productivity is what creates new wealth. Those who complain of the jobs “lost” imply that without imports businesses would keep on going the way they have. Nothing could be more harmful.
Special agreements among two or three countries, however, don’t bring that kind of efficiency. In fact, the new North American Free Trade Agreement (NAFTA) is chock full of provisions favoring U.S. textile makers, Canadian farmers and Mexican banks-not exactly the sort of thing the phrase “free trade” brings to mind. And by lowering tariffs on Mexican goods, the pact will give Mexican exports an edge in the U.S. market, even though other countries in the region may produce the same products more cheaply.
On economic grounds, that sort of discrimination is hard to justify. But the case for the NAFTA is political, not economic: by giving Mexico an advantage, Washington hopes to cement the free-market reforms of President Carlos Salinas-reforms which, it hopes, will eventually lessen migration to the United States and reduce the risk of instability across the Rio Grande. Political considerations were behind the existing U.S. free-trade arrangements with Canada and Israel as well.
Those foreign-policy concerns are far weaker south of Mexico. But when he announced his Enterprise for the Americas initiative two years ago, Bush endorsed free trade from Alaska to Tierra del Fuego, and the idea took root. Bush has pledged to open talks next with Chile. Although Chile has restored democracy and built an impressive record of economic reform, no strategic interests demand special U.S. trade ties with a country former secretary of state Henry Kissinger once described as “a dagger pointed at the heart of Antarctica.” The trade issues are minor, too; American exporters aren’t complaining about the difficulty of selling in Santiago. “Chile is a pissant country with very little trade with the United States,” one U.S. diplomat asserts. If the case for a free-trade agreement with Chile is weak, the case for bargaining with Panama and Bolivia is even weaker: it means a huge expenditure of time and effort for little political or economic gain.
Nor is it practical to try to shoehorn other countries into the NAFTA. Too many of its provisions were designed to deal with unique problems; they are not generic clauses that can be applied to anyone. Mexico might not favor expanding the pact, as that would reduce its advantage in the U.S. market. In any case, attempts to expand the NAFTA beyond Mexico won’t be welcomed in Congress, where the Argentine and Chilean lobbies aren’t exactly potent.
If the case for more free-trade agreements with Latin America is weak politically, it’s even weaker economically. In the United States, much of the impetus comes from pundits who see the world breaking into Asian, European and American trading blocs. But U.S. exports to Central and South America are only one fourth of those going to Europe or Asia. With the Far East’s economies growing twice as fast as the Americas’, a Western Hemisphere trade bloc is the wrong horse to bet on. There’s much more to gain by fighting for access to China, South Korea, Taiwan, Japan and the European Community than by signing free-trade agreements across Latin America. And make no mistake: bargaining with Latin America means less time to deal with far more consequential problems.
The NAFTA, despite the barrels of ink devoted to praising or attacking it, really won’t make much difference to the United States. With it or without it, trade across the border in both directions will continue to grow; with it or without it, low-skill jobs in U.S. manufacturing will be automated away or move to countries where wages are lower. The political case for approving the NAFTA now is as strong as when the negotiations began in 1990. But the case for signing more agreements like it still doesn’t add up.
