Rewriting NAFTA is probably going to sound pretty good to the U.S. public these days. How and when the current financial meltdown will be stabilized can only be guessed. One might have hoped the example of the Smoot-Hawley tariffs of 1930 would have forever poisoned the notion that higher tariffs protect U.S. jobs. Those tariffs were part of the unprecedented downward spiral into joblessness that we wish to preempt now.
Today’s NAFTA-jobs debate is a little like rehearsing Hamlet without the Prince. Since 1995, imports from Mexico have slightly more the doubled, while imports from greater China (China plus Hong Kong and Macao) have more than quadrupled. So the question of how trade affects U.S. jobs and wages is an increasingly Asian issue rather than a Mexican one.
As far as unemployment is concerned, increased labor productivity—rather than trade agreements like NAFTA—ranks as the predominant cause behind the shrinkage of manufacturing employment across the globe. On a percentage basis, Chinese manufacturing jobs actually have contracted far more drastically than U.S. manufacturing jobs, and China certainly has no NAFTA to blame for its situation.
An equitable fiscal reform that removed the unfair burden of health and retirement payments from employers and put it on consumption (via a sales tax) would help U.S. manufacturers facing foreign competition and boost the low rate of U.S. savings that causes our trade deficits. Reform is certainly needed, but reforming NAFTA is a distraction we cannot afford.
Published by Businessweek.com’s Debate Room, September 2008.