We Had Trade Before We Had NAFTA And Other Trade Deals by Dean Baker, InsideSources
Editor’s Note: For an alternative viewpoint, please see: Counterpoint: Free Trade Agreements Have Delivered for Americans
Supporters of the trade deals of the last quarter century, including the currently pending Trans-Pacific Partnership (TPP), invariably describe these deals as the alternative to autarky. They imply that the debate is between those who support opening up markets and increasing trade and those who would have the United States retreat into self-sufficiency.
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This may be an effective sales pitch for these deals, but it has nothing to do with reality. The United States already had plenty of trade before NAFTA, CAFTA and the other trade deals negotiated over this period, just as it already has a huge amount of trade with the TPP countries. It will continue to have large amounts of trade with Canada, Japan and other TPP countries regardless of whether Congress approves the deal, so we are not arguing about whether or not the United States should trade.
Rather, NAFTA and subsequent trade deals are about putting in place a set of rules that structure the pattern of trade to favor some groups and disadvantage others. At the top of the list of beneficiaries of these deals are the multinational corporations that want more protections for their investment in other countries. A major part of NAFTA was the investment chapter that puts in place safeguards to ensure U.S. companies that Mexico’s government will not confiscate their factories or restrict their ability to take profits out of the country.
This made it easier for companies like General Motors to set up assembly plants in Mexico and ship the finished cars back to the United States. This was good news for General Motors’ efforts to boost profits. It was not good news to the autoworkers in the United States who lost jobs or were threatened with job loss if they did not accept pay cuts and other concessions.
There was nothing natural about this pattern of trade. Our negotiators could have focused on reducing the barriers that make it difficult for smart kids from Mexico to study to become doctors, to meet U.S. standards, and then practice in the United States. The arguments for gains from trade are the same with foreign doctors as with foreign cars, except the potential gains are far larger with doctors. But doctors have more political power than autoworkers, so our trade deals focused on driving down autoworkers’ wages.
The trade deals of the last quarter century have also increased protectionism in important areas, notably patents for prescription drugs and copyrights for books, movies, software and recorded music. The effort to make drug patents and related protections ever longer and stronger has raised drug prices in the United States and around the world. We now spend more than $400 billion a year on prescription drugs ($1,300 per person) that would likely sell for one-tenth of this price in a free market.
Again, there was nothing inevitable about the strengthening of these protections as part of trade deals. This was the result of the power of the pharmaceutical, software and entertainment industries. As a result of their power, they were able to insert rules in trade deals that effectively redistributed money from the rest of us to them.
In addition, these trade deals have included a variety of rules that can interfere with the ability of people in the United States and elsewhere to implement health, safety and environmental regulations if they pose a threat to foreign investors. We saw a recent example of this when a law requiring that beef be labeled for its country of origin was ruled to be a violation of NAFTA.
The TPP will include even stronger rules of this sort, which could hamper efforts to regulate fracking or measures designed to restrict greenhouse gas emissions. As a possible harbinger of things to come, the Canadian company that was going to build the Keystone Pipeline is suing the Obama administration over its refusal to approve the project. Even if they are unable to win this suit, the threat of legal action is likely to deter regulatory efforts at all levels of government.
In short, when we debate the merits of the TPP and other trade deals, we are not arguing about trade. We are arguing over specific rules in these trade deals that are intended to favor some interest groups at the expense of others. Making trade the issue is a deliberate distraction.