Nafta is good for America, but it’s falling to Canada and Mexico to explain why

Partners in trade.
Partners in trade.
Image: Reuters/Ginnette Riquelme
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US president Donald Trump has been dithering on the North American Free Trade Agreement, or Nafta, since he took office, threatening to tear it up one minute and deciding to keep it the next.

While he makes up his mind, Nafta’s other members, Canada and Mexico, have taken it upon themselves to brief Americans on why it’s in their best interest to keep it. “It’s kind of our job as Mexicans and Canadians to be specialists in the US,” said Canada’s foreign affairs minister, Chrystia Freeland, during a May 23 conference organized by the Americas Society/Council of the Americas in Mexico City. “Americans are not always that focused on us and are not always that aware of their relationship with us.”

Both Mexico’s and Canada’s economies rely heavily on trade, and depend on the US more than the US depends on them. During the conference, Freeland, along with her Mexican counterpart Luis Videgaray and Mexican economics minister Ildefonso Guajardo, laid out a remarkably similar set of pro-Nafta arguments to debunk Trump’s myths about trade.

Here are the top four:

Myth 1: Nafta is bad for the US

Trump has painted Nafta as a losing proposition for the US on grounds that Mexico’s cheap wages have driven American producers south of the border and its cheaper products have inflated the US’s trade deficit. Canada and Mexico have been fighting that idea in Washington, DC over the past few months.

Videgaray has sat down with US officials in the US or Mexico at least once a month since Trump took office. Freeland, who keeps a spreadsheet of all Canadian officials’ visits to the US, said they have held 235 meetings with White House officials, congressional members, and even some state governors.

The envoys come armed with stats. Canadian officials have helpfully broken down American exports by congressional district, lest some US House members overlook Nafta’s benefits in their own backyard. House Speaker Paul Ryan, for example, was surprised to learn that his congressional district in Wisconsin alone ships $1 billion in exports to Canada, according to Freeland, who met with him. “He said ‘Just mine? A billion dollars of exports?’ I said ‘Yes, speaker. That’s right,’” she said.

According to US trade data, the whole state of Wisconsin exported $6.6 billion to Canada and $3 billion to Mexico in 2016. Ryan’s office did not return requests for comment.

US companies already recognize that they have won from Nafta, Mexico’s Guajardo told the conference. Over the first few months of Trump’s presidency, they’ve lobbied more for the deal than during all of the previous 20 years, he said. Furthermore, Trump’s claims that the US is a loser and Mexico a winner puts Guajardo in an impossible position to start talks. “You can’t sit down to a negotiation while you’re in the dock as being the only winner,” he said.

Myth 2: A trade deficit = unfair trade

Trump often brings up the US’s bulging trade deficit as evidence of the damage Nafta has done. But a trade deficit in itself isn’t necessarily bad; it can be a sign of a strong economy as well as a weak one.

Guajardo pointed out that to properly assess the trade balance, “what would need to be analyzed would be the current-account balance, which also includes services.” But even if you frame the debate in terms of trade of goods, he noted, many of the products the US imports from Mexico, such as cars, are made up of components that the US first exported to Mexico. In other words, by raising tariffs on imports, the US would shoot itself in the foot, by hurting the manufacturers who made those components.

Mexico has been trying to explain these concepts to the Trump administration, including in an 11-page document it submitted to the US Department of Commerce earlier this month. It reads like a beginner’s economics textbook, full of quotations from economic studies and graphics.

The real definition of “unfair trade,” said Videgaray, is “violating the rules or is going against the principles of a market economy.” Nafta already has provisions to fight that.

Myth 3: Trade is killing American jobs

Trump has repeatedly blamed Nafta for shuttered factories throughout the US. But the bigger culprit is technology, not trade. Manufacturing jobs in the US have been in decline, as a share of the total, since before Nafta was signed, and the culprit was increased automation in factories.

So while it might be tempting to blame foreigners and trade for the woes of what Freeland called the “hollowed out” middle class, it won’t solve the root problem. In Canada, she said, the government is getting at it by raising taxes so that wealth can be distributed more equally.

In Mexico, officials see more trade, not less, as a way to improve wages, said Videgaray. In fact, Mexican president Enrique Peña Nieto has made improving workers’ quality of life one of the goals of the Nafta renegotiation.

Myth 4: Two-way deals are better than a three-way one

Trump has floated the idea of getting rid of multilateral agreements in favor of bilateral deals, arguing he could get better conditions by dealing with each country individually. Both Freeland and the Mexican officials pointed out that the renegotiation of Nafta has to be a trilateral affair. Any changes to the deal have to be approved by the three partners, so they would have to sit at the same table anyway.

And replacing Nafta with three bilateral agreements would be impractical, said Videgaray. That’s the conclusion that the deal’s original negotiators arrived at 25 years ago, when production chains didn’t yet stretch across the three countries. Back then, that integration was just a projection. “Today it’s a reality,” he added.