The reality of NAFTA

Both Barack Obama and Hillary Clinton have criss-crossed the Midwest, promising to renegotiate or dump NAFTA in order to improve the economic fortunes of the region. However, as John Engler points out, almost the entirety of the NAFTA trade deficit comes from energy imports as the US has made Canada and Mexico the top two nations for oil purchases. If we want to truly improve our trade deficit, we should look elsewhere — like to Europe:

What the antitrade advocates have been hiding from the candidates (or maybe don’t know themselves) is that almost all of the increase in our Nafta deficit since 2000 has been in increased U.S. imports of energy from Canada and Mexico. In fact, $58 billion of the $62 billion increase in our Nafta deficit has been in energy imports. That’s 95% of the total increase.

We need that oil and gas, and we would rather get it from our friendly neighbors. Surely no one seeks to argue that America would be better off saying no to Mexican and Canadian oil and gas, advocating that we instead import that energy from less secure sources farther from our borders.

Except for energy, though, our trade deficit within Nafta has hardly grown at all – only $3.5 billion from 2000-2007. Our agricultural and manufactured goods sales to Nafta countries have just about kept pace with our imports. That’s a lot more than one can say about the rest of our foreign trade.

While the nonenergy deficit within Nafta has grown less than $4 billion since the job loss started, with the rest of the world it grew over $150 billion. Put another way, the increase in our nonenergy deficit within Nafta has accounted for only 2% of the increase in our global nonenergy deficit since 2000.

Why are the candidates so focused on 2% of our trade problem rather than on the other 98%? Our nonenergy deficit with the high-wage, high-environmental-standard European Union (with whom we have no free trade agreement) grew 10 times as much as it did with Nafta. And of course, with China the deficit grew even more.

Of course, we could import less oil from Canada and Mexico if we drilled more of our own oil domestically. We could open ANWR and the coasts to oil production, and we could build the first new refineries in 30 years to produce our own gasoline. That would employ more Americans, drop the cost of gasoline, ease our reliance on Middle East oil, and eventually strengthen the dollar. That would not only end the NAFTA trade imbalance, but would make us a stronger nation..

Would Hillary or Obama consider that approach? Of course not.

Engler, the former Michigan governor, says that NAFTA is the solution, not the problem. Had the US applied NAFTA to the rest of its trade, our imbalance would have dropped from $155 billion since 2000 to a mere $25 billion. That represents a lot of American jobs and more capital remaining within the American economy. Instead of losing across the board, we would have increased American agricultural exports and bolstered our own manufacturing base.

Engler isn’t sure whether the two Democrats are ignorant of NAFTA’s real impact or simply want to use it to demagogue people they assume are ignorant of it. Neither reflects well on their ability to lead this nation, economically or in any other fashion.

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