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Trump, Trade, and the Future of NAFTA

March 28, 2017
 

On March 27, the Heller-Hurwicz Economics Institute and the Carlson Global Institute hosted three lead architects of the North American Free Trade Agreement (NAFTA) to discuss North American trade prospects and the future of the trilateral trade agreement. Professor Tim Kehoe moderated the panel featuring Carla Hills, former U.S. Trade Representative; Jaime Serra Puche, former Secretary of Trade and Industry of Mexico; and John Weekes, former Chief NAFTA Negotiator for Canada. The discussion covered potential dangers and opportunities surrounding the renegotiation of NAFTA for firms and consumers around the world.

The types and magnitude of benefits from NAFTA differ among Canada, the U.S., and Mexico, but the panelists agreed that it has been and continues to be advantageous for each country. “We have transformed our economies so that we don’t work in protected circles, but rather we are integrated. It’s been beneficial to all of us. It’s greatly expanded our trade, jobs, and technical capacity,” Hills explained. She went on to say, “Any agreement that was negotiated a quarter century ago needs to be updated - not renegotiated, but updated.”

Weekes offered a Canadian perspective on how NAFTA has impacted their economy. “Canada hoped NAFTA would consolidate and strengthen trade with the U.S., open up the opportunities the Mexican market had to offer, and put Canadians on an equal footing with the U.S. economy in the North American market. In my view, we achieved all of those objectives.” Furthermore, he said that NAFTA unleashed powerful forces in the private sector which have been extremely beneficial for all three countries.

Mexico was traditionally a closed economy, which posed issues for their ability to export. Therefore, they were looking to increase their ability to export and attract foreign direct investment. “Before NAFTA, Mexico exported $100 million per day; now, we export $1 billion per day,” said Serra Puche. “We never imagined that we were going to get there, let alone that we were going to develop a new paradigm. It is so important that the new administration understands that we are not simply buying and selling to each other, but we are producing jointly. For every dollar that the Mexico exports to the U.S., forty cents are American inputs.”

Serra Puche explained this production-sharing paradigm in order to illustrate why renegotiating NAFTA and introducing protectionist policies would prove to be damaging. “It is absolutely essential to emphasize that the U.S., Canada, and Mexico are on the same side of the table. To introduce any protectionist measures would not only hurt those exporting to us, it would hurt ourselves and the whole region.”

While the panelists can identify the benefits of trade and the reasons why NAFTA should not be renegotiated, there is an ongoing debate among politicians and the general public. Hills attributed this distaste for globalization and trade to failed retraining programs and incorrect blame placed on trade, when automation and technological advancements are often the reason for job dislocations. “We have not trained our workers for an economy of post-NAFTA. We left them in the economy of pre-NAFTA. People are unhappy,” said Hills. She added, “We need to get facts out on the table. We need to have universities, think tanks, business groups, and individual employers educate their workers on how important trade is outside our borders. Trade agreements are part of the answer, not part of the problem.”

Weekes contributed to Hills’ argument in regards to why there is trouble on NAFTA’s horizon. “There’s been a lack of willingness of political leaders to explain honestly to the public where the problems in the labor and job markets are,” Weekes believes. Further, he said, “A small portion has been caused by trade, and the largest portion has come from technological advancement. Politicians have found explaining that to be a complicated task - it’s a lot easier to blame foreigners and foreign markets.”

Serra Puche sees similar problems in the mindset of politicians. Specifically, he said, “The leaders are thinking about the next elections, not about the next generation.” He also recognizes that there is a basic misunderstanding over the concept of trade deficits. “Politicians market trade deficits as being bad, but in reality, they hardly correspond with trade policy. Trade deficits are much more closely linked with the savings rate and macroeconomic policy of a country. The criticism of NAFTA is largely unwarranted.”

Nevertheless, the criticism persists and the future of NAFTA and U.S.-international trade remains unclear. “I worry that if the disciplines of international trade cooperation and the benefits that have flowed from that start to erode and we see more frictions from states, that this could pose a risk to the international security order,” said Weekes. “We need to think about what we are doing when we start tinkering around with the global architecture. We need to be confident that the direction in which we are going is going to create a better world rather than a worse world.”

Media coverage of the event is available from the Star Tribune, MPR and CNN Money.

View photots from the event on Flickr.

Co-host:
Carlson Global Institute and the Global Matters Speaker Series

Corporate Sponsors:
Litigation Analytics, Inc.
Thompson Reuters

Media Sponsor:
Twin Cities Business

Promotional Partners:
Minnesota Trade Office
Global Minnesota
Consulate of Mexico in St. Paul