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Wednesday, February 27, 2008

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NAFTA is not responsible for Ohio

Perhaps an unanticipated benefit of Clinton and Obama outbidding each other to see who could savage NAFTA more is that the mainstream media will actually point out that NAFTA is not responsible for the rust belt's economic woes.

David Leonhardt makes this point in his New York Times column today:

The first problem with what the candidates have been saying is that Ohio’s troubles haven’t really been caused by trade agreements. When Nafta took effect on Jan. 1, 1994, Ohio had 990,000 manufacturing jobs. Two years later, it had 1.03 million. The number remained above one million for the rest of the 1990s, before plummeting in this decade to just 775,000 today.

It’s hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed.

A more important cause of Ohio’s jobs exodus is the rise of China, India and the old Soviet bloc, which has brought hundreds of millions of workers into the global economy. New technology and better transportation have then made it easier for jobs to be done in those places and elsewhere. To put it in concrete terms, your credit card’s customer service center isn’t in Ireland because of a new trade deal.

All this global competition has brought some big benefits, too. Consider that cars, furniture, clothing, computers and televisions — which are all subject to global competition — have become more affordable, relative to everything else. Medical care, movie tickets and college tuition — all protected from such competition — have become more expensive.

Leonhardt also raises an obvious point that has, curiously, not been aired all that often:

[W]hen you read [Clinton's] plan, or Mr. Obama’s trade agenda, you discover none of it is particularly radical. Neither candidate calls for a repeal of Nafta, or anything close to it. Both instead want to tinker with the bureaucratic innards of the agreement. They want stronger “labor and environmental standards” and better “enforcement mechanisms.”

It’s a bit of an odd situation. They call the country’s trade policy a disaster, and yet their plan to fix it starts with, um, cracking down on Mexican pollution.

Repeat after me: attaching labor and environmental standards to trade agreements will have no appreciable effect on trade flows. Anyone who tells you differently is selling you something.

UPDATE: Simon Lester does make a valid point: "Demanding that labor and environmental provisions be included could scuttle some trade deals, and that would have an impact on trade flows." Of course, that's not really an argument in favor of inserting them. Denying market access to poor countries doesn't make them richer, and poor countries tend not to care about labor and environmental standards.

posted by Dan on 02.27.08 at 08:47 AM

Comments:

Here's the short answer: they have to pander to the left in order to win the nomination. That's why their criticism of NAFTA is asymptotal-- it's a meaningless fight to see who can come closest to rejecting the treaty without actually doing so, because they're well aware that would be stupid.

posted by: Edgar on 02.27.08 at 08:47 AM [permalink]

I too am bashing my head against the wall. Clinton really is on the record as having been a supporter of NAFTA, and Obama generally has voted in favor of trade agreements. The solution to displaced workers IS NOT REPEALING TRADE AGREEMENTS!!! It's coming up with intelligent programs to help those workers.

Ugh.

posted by: Jo on 02.27.08 at 08:47 AM [permalink]

I thought the solution to displaced workers is for them to get new jobs, even if that means learning new skills. I'm pretty sure there's nothing in the Constitution describing the government's responsibility to guarantee career paths.

posted by: Justin (NC) on 02.27.08 at 08:47 AM [permalink]

I'm not convinced by the statistics. Surely there's a lag time between passage of NAFTA, the implementation of its various provisions, economic effects, and job losses? I'm no economist, but if the Reps could claim that Clinton's boom was based on Reagan's policies, why isn't it reasonable to expect the overall lag time to be 10 years or so? Look at the auto industry--Toyota's been outselling GM and Ford for years. How long was it between when they started to lose market share and when they started to cut jobs permanently? I suspect years.

Having said the above, I still support NAFTA--it's just the statistical case that's not proven.

posted by: Bill Harshaw on 02.27.08 at 08:47 AM [permalink]

attaching labor and environmental standards to trade agreements will have no appeciable effect on trade flows.

I'm not so certain about this, at least for trade agreements among small groups of countries. I think you can make a case that if the US makes a trade agreement with country A, and that agreement does include labor and environmental standards, which presumably would increase the short term cost of doing business in that country, then many companies will be more/less likely to invest in that country. The mores presumably sensitive to social pressures in the US. The lesses more focussed on narrow cost considerations.

Given high levels of inter-affiliate trade, it's quite easy to see how this could affect trade flows, especially for that portionof FDI that involves sequential country hopping in search of lower labor costs.

Two caveats to this are that none of these potential effects would actually lower US imports (would just shift the exporting country), and these effects (essentially trade diversion) become less important as the particular environmental and labor standards are applied to more countries (.eg., if they became parts of WTO).

posted by: Gene on 02.27.08 at 08:47 AM [permalink]

Will someone please tell me what the hell a "trade time-out" is? I've heard HRC drop this twice over the last two debates and I have no idea what she thinks this means.

posted by: Aaron on 02.27.08 at 08:47 AM [permalink]

"poo countries"? (see last sentence). Where life is really crappy?

posted by: Tom T. on 02.27.08 at 08:47 AM [permalink]

A little history may be appropriate: In the Uruguay Round Agreements Act of 1994 which let the US join the WTO, Newt Gingrich inserted a provision that the US must "review" the WTO, in particular dispute settlement, every 5 years... and each of the two reviews have obtained sound support for the WTO. Meanwhile, we still describe trade critics as "protectionists" or populists. This is all confusing to even the most sophisticated US observors overseas, who wonder how the US could "review" (which to them could signal "repudiate" or renegotiate existing internaitonal agreements. They now view the Democrats as anti-internationalists and as leery of international law as George Bush. See todays Financial Times at http://www.ft.com/cms/s/0/b6dc1c0e-e669-11dc-8398-0000779fd2ac.html

posted by: Susan Ariel Aaronson on 02.27.08 at 08:47 AM [permalink]