A Quick Synopsis On the Controversial Bill
A Primer On NAFTA
The North American Free Trade Agreement, or NAFTA, has become one of the most powerful, yet controversial pieces of legislation in recent American history. It often evokes strong emotions from all sides of the political spectrum. Although many pro free trade and conservative economists espouse the benefits of this legislation, its critics have a wide range of criticisms in regard to the various externalities and unintended consequences which have resulted because of it.
The idea of a trade agreement among the countries of North America was first proposed by Ronald Reagan as early as 1979. Reagan announced the idea while formally declaring his candidacy for the presidency, as part of a larger agenda towards supply side free market economics. The goal behind the proposal was to increase prosperity within the United States, which had been suffering from the economic troubles of stagflation for the better part of a decade. The purpose behind the legislation was to increase trade between the countries of North America by reducing regulations and tariffs between them. This would result in increased competition in a number of key areas, in theory leading to reduced costs for consumers and leading to greater overall prosperity for the entire population. Although trade agreements had existed prior to NAFTA, such as the Canada-US Trade Agreement of 1989, none had reached the size and scope of NAFTA.
The idea of a trade agreement between the three countries of North America gained popularity in the 1980s. Growing anti-Communist rhetoric combined with the widespread neoliberal policies of the World Bank and the IMF, resulting in the spread of free market policies around the world. Supporters of such a policy in North America used a trade agreement passed in Europe as a model of the prosperity that could result from such legislation. In 1986, several European countries signed a similar agreement which would reduce tariffs and regulations in regard to international trade. Many feared that more wealthy nations such as France and Germany would prosper at the expense of poorer countries such as Portugal and Spain. The results were quite different however, with wages in Spain and Portugal more than doubling. Many Germans and Frenchmen feared that a large number of manufacturing jobs would leave their countries for others with cheaper labor. The exact opposite happened however, with Germany and France gaining jobs at a faster pace than those of the Iberian Peninsula.
While NAFTA was proposed by a president often associated with the principles of laissez faire economics, it was ironically a Democratic president who signed the legislation into law. Bill Clinton signed NAFTA and it was implemented on January 1st, 1994. This was the beginning of the agreement, but it has been gradually introduced over time. NAFTA had eliminated many of the various agricultural tariffs between the countries of North America, but it wasn’t until January 1st of 1998 before the last remaining ones were completely removed. The agreement had not been fully applied to North American trade until January 1st 2008, when all final tariffs and restrictions mentioned in the agreement were removed between the United States, Canada and Mexico. North America still maintains restrictions in regard to the trade of dairy, poultry, eggs, and sugar.
NAFTA has had its fair share of critics, such as labor groups, economists who felt it would take jobs from the US, and human rights activists who thought that Mexican workers were being used simply as cheap labor. Many accuse the agreement of hurting the poor indigenous farmers of Mexico, who simply cannot compete with the large corporate farms of the United States. Opponents of NAFTA say that the agreement has contributed to the widespread unemployment of Mexican citizens. Opponents also point to the fact that these same corporate farms receive widespread subsidies from the American taxpayer, which hardly constitutes free trade. This has led to accusations of “dumping” by the United States, or selling a product below its real market price. When it comes to a product such as sugar, which Mexico produces far more cheaply than the United States, NAFTA vigorously enforces the use of quotas, which keep the cheaper foreign sugar out at the expense of Mexico.
Others, including a long list of politicians, blame NAFTA for the continued deindustrialization of the United States and the many problems associated with it. Critics charge that traditional manufacturing jobs which once were filled by American blue collar workers have fled the United States for the cheaper wages of Mexican workers. Former presidential candidate Ross Perot famously warned of the “giant sucking sound” of jobs leaving the United States during the 1992 election. President Obama himself echoed these complaints, as he made it a central issue in his attacks on Hillary Clinton during the 2008 campaign. Speaking at campaign visits in the Mid-West, Obama said that Clinton’s support for the legislation has contributed to the widespread unemployment which has disproportionately affected the “Rust Belt”.
There was a heated debate within Congress over the passage of NAFTA, which saw the argument framed as an issue of free trade versus organized labor. Although the majority of Republicans in Congress supported the bill, the many different factions of traditional Democratic voters were split on the issue. While many African American groups opposed the bill on the ground that it would facilitate the flight of good paying blue collar jobs from the inner city, many Latino groups supported it because of the prosperity it promised to bring to Latin America. Economist Charles Gibbons finds several important factors that may influence Democratic voting patterns in Congress. Congressmen were more likely to oppose NAFTA based on whether or not their economies tended to be import based or not. Congressmen were also more likely to support the bill based on corporate campaign contributions. Politicians were increasingly likely to support NAFTA based on the greater amount of money which they accepted from such corporations.
Defenders of free trade, particularly prominent Republicans associated with the Reagan/Bush administrations, as well as a number of free market economists and think tanks, cite a number of statistics to refute these allegations. The Department of Trade Representative points out that the number of jobs in the United States has increased by 24% since NAFTA was signed. This does not take into consideration however, that the United States’ population has increased by a substantial amount since then. The Department of Trade Representatives also points out that business investment in the United States has risen by 117% since 1993, but overlooks many important factors, such as the transition of former Soviet countries and China to more market based economies, which would have previously barred the majority of international commerce with North America.