TuckCenter for Global Business and Government

Slaughter & Rees Report - Trade Teeters as NAFTA Turns 20

November 18, 2013 --

Foreign trade rarely receives attention on television. The biggest exception to that rule came 20 years ago last week in a spirited prime-time debate over whether Congress should approve the North American Free Trade Agreement (NAFTA). That debate—and its aftermath—is an opportunity to examine NAFTA’s success at a moment of scarce leadership to drive further trade liberalization.

With support for NAFTA flagging in the fall of 1993, the Clinton Administration opted to have Vice President Al Gore debate on live TV NAFTA’s most vocal opponent, Ross Perot. Perot received 19 percent of the popular vote in the 1992 presidential election; a key plank of this most-successful third-party candidacy since Teddy Roosevelt was Perot’s forewarning that NAFTA would trigger a “giant sucking sound” of U.S. jobs heading to Mexico.

The Nov. 9 debate on CNN’s “Larry King Live” attracted an audience of 16 million people, which made it the most watched program in cable TV history (a milestone not eclipsed until a Monday Night Football game on ESPN in 2006). Fortunately for free traders, Gore pummeled Perot (you can read the transcript here). The debate’s priceless moment came early when Gore unveiled an 8 x 10 photo of Senator Reed Smoot and Congressman William Hawley (of “Smoot-Hawley” Depression-era protectionist infamy), handed it to a grumpy Perot, and said, “I framed this so you can put it on your wall if you want to.” (A few years earlier, Smoot-Hawley made another amusing pop-culture appearance in “Ferris Bueller’s Day Off.”)

Gore’s thrashing of Perot almost single-handedly swung wavering Americans and members of Congress to support NAFTA. U.S. public support for NAFTA surged from 34 percent pre-debate to 57 percent after; the House and Senate each approved the agreement by wide margins shortly thereafter; and the agreement became law on Jan. 1, 1994. By adding Mexico to the already-operational free-trade agreement between Canada and the United States, NAFTA created the world’s then-largest free trade zone. Today it covers more than 460 million people, who last year produced over $19 trillion worth of goods and services.

NAFTA’s benefits have been many. Perhaps most visibly, trade among the countries has exploded. For example, U.S.-Mexico bilateral trade rose from $81.5 billion in 1993 to $463.6 billion in 2012. Mexico’s former president, Ernesto Zedillo, has said that NAFTA “has been crucial in transforming Mexico into one of the world’s biggest exporting powers.” Within each country, more jobs are now linked to all this trade. According to a recent U.S. Chamber of Commerce study, trade with Canada and Mexico now supports nearly 14 million U.S. jobs, and nearly five million of these net jobs are supported by the increase in trade generated by NAFTA. Recent research has also found, critically, that NAFTA raised average wages in all three countries. NAFTA brought broader strategic benefits, too: as former U.S. Trade Representative and World Bank President Robert Zoellick has pointed out, the agreement sparked a new, more cooperative era in U.S.-Mexico relations.

NAFTA’s achievements stand in stark contrast to today’s slowdown in global trade caused partly by a sputtering trade agenda. Since 1980, trade has typically grown at double the rate of the global GDP increase. That didn’t happen last year and it’s not projected to happen this year either, reports the Financial Times. One important reason for this is that the World Trade Organization’s current multilateral negotiations are at a near standstill—despite having been launched 12 years ago this month in Doha, Qatar.

Equally worrying is that the U.S.-EU Transatlantic Trade and Investment Partnership (TTIP) negotiations, launched to much fanfare earlier this year, may also be stalling. In Europe, many leaders have voiced TTIP concerns in the wake of phone-tapping brouhaha. In the United States, 170 of the 435 members of the U.S. House of Representatives have stated in multiple letters to President Obama their opposition to granting him the traditional trade-negotiating authority (formally Trade Promotion Authority; colloquially, Fast Track Authority) that prevents Congress from amending President-negotiated trade agreements before voting on them. Absent this authority, countries have long been reluctant to deeply engage the U.S. Trade Representative in treaty negotiations knowing that post-handshake, 535 freelancing Members of Congress can rewrite any part of the agreement (to serve any and all parochial interests).

Building public support for global trade has long been a challenge (as one of us co-wrote in a book many years ago)—and has only gotten harder in the post-crisis years. That said, Al Gore demonstrated how high-level leadership can drive progress. Today America—and much of the world—needs more of that leadership to rejuvenate the global trading system and thereby build more jobs connected to the world. Trade was a key driver of growth and opportunity throughout the 20th century. Will it be in the 21st century as well?

Articles © 2013 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2013 Trustees of Dartmouth College. All rights reserved.

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