“The debate about NAFTA has been a red herring,” said the CATO Institute’s Dan Ikenson in a debate this morning with AAM director Scott Paul on Minnesota Public Radio. 

NAFTA has been a significant topic of debate recently among the various presidential candidates and Ikenson disagrees with criticism of it by Senators Obama and Clinton.  As proof of NAFTA’s worthiness, he cites the fact that since the agreement was passed, “U.S. investors have invested about $2 billion a year in Mexican manufacturing.”

An Economic Policy Institute (EPI) study seems to clash with Ikenson’s rosy pronouncements of the trade deal’s legacy, though.  According to their study, NAFTA has claimed a net 1 million U.S. jobs in the past 15 years or so.  Perhaps that’s because the $2 billion in annual Mexican manufacturing investment that Ikenson praises has not been equaled by a concurrent investment in new American manufacturing.

With NAFTA serving as the launching point for a debate on free trade, Paul and Ikenson sparred over competing approaches to U.S. trade policy.  Paul termed NAFTA an “experiment”—“the first major free trade agreement with a country that’s still developing”—and one that, with hindsight, needs “some adjustments,” including “workers rights and environmental protection.”    

Ikenson, however, sees NAFTA as a success and views increased labor and environmental standards as “fig leaves for protectionism.”  He suggested instead that when manufacturing moves to developing countries, it “raises living standards.”

  This poses an interesting contradiction: It’s hard to raise living standards while simultaneously dismissing labor and environmental concerns.  And the projected boost in Third World living standards that Ikenson touts for U.S. trading partners very much includes countries like China, where rampant labor abuse, air pollution, and poisoned lakes vie for worldwide attention with a litany of tainted exports.

Ironically, Ikenson also dismisses the $711 billion U.S. trade deficit, saying: “I don’t think the trade deficit has anything to do with trade policy…it’s a function of different patterns of savings…the way to change that is to encourage better consumption abroad…as the U.S. economy slows down, the trade deficit is growing smaller.”

It’s true that the seemingly endless U.S. trade deficit has declined somewhat during periods of recession—when consumers have less money to spend.  But it belies common sense to think that a vast slowing of the economy in order to balance our accounts is a sound prescription for future prosperity.

Ikenson believes that the U.S. benefits overall from an abundance of ever cheaper consumer imports.  But the real problem is the long-term consequences of this approach.  Day-to-day, it seems great to buy a $5 Chinese t-shirt instead of a $10 American t-shirt.  But when the U.S. textile worker loses his good-paying job at the t-shirt factory, and downshifts to a $7/hour retail job, it’s hard to see how many t-shirts he’ll be able to buy at all. 

  The bottom line is jobs.  A large-scale disenfranchisement of millions of manufacturing workers presents a worrying scenario.  And the resulting consequences are equally troubling: Unemployed or underemployed workers can not pay the taxes to support schools, hospitals, and communities; they can’t pay for healthcare; they can’t adequately provide for their families.

Mr. Ikenson needs to look at the big picture and make serious adjustments for the failings of the current model of trade that he and his colleagues espouse.

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This entry was posted on Wednesday, April 30th, 2008 at 11:35 pm and is filed under Manufacturing in the U.S., Economic Security, Enforcing Trade Laws, AAM. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.