What Ever Happened...
...to that Giant Sucking Sound, Anyway?
Remember when H. Ross Perot predicted during the 1992 presidential debates: “You’re going to hear a giant sucking sound of jobs being pulled out of this country.” Mr. Perot didn’t favor free trade, particularly with Mexico. Have we learned any lessons since then?
Despite dire warnings from Perot and other protectionists at the time, President George H.W. Bush (R) signed the North American Free Trade Agreement (NAFTA) in December of 1992. Bush, of course, gave way to Bill Clinton (D) in the White House in January 1993. To his credit, Clinton ignored various factions in his own party opposed to freer international trade, and endorsed NAFTA.
The U.S. House of Representatives passed NAFTA by a 234-200 vote on November 17, and the Senate three days later by 60-38. Clinton signed the measure into law on December 8, 1993, and the agreement took effect on January 1, 1994, opening up trade between the U.S., Mexico and Canada.
The U.S. and Canada had a free trade accord in effect since 1989, so the big worry for many was trade with Mexico. So, how has NAFTA performed over ten years? Well, pretty darn good. U.S. businesses and employees have garnered rewards from exports to Mexico increasing from $41.6 billion in 1993 to $97.4 billion in 2003. That’s a rise of 134 percent, while, over the same period, inflation rose by 20 percent. Consumers, again along with many businesses, experienced benefits from a 246 percent rise in imports (from $39.9 billion to $138.1 billion) from Mexico. Total trade (export plus imports) between the U.S. and Mexico grew by 189 percent – from $81.5 billion to $235.5 billion.
Interestingly, that growth in total trade with Mexico from 1993 to 2003 was almost three times faster than overall U.S. economic growth. Only the most delusional protectionists could find fault in the results of NAFTA.
There was good economic news on the political front as well. NAFTA was promoted by both Republican and Democratic presidents, and received support in Congress from both parties. This bipartisan support for removing government-imposed barriers to international trade was seen once again in votes on two free trade accords in 2004.
President George W. Bush (R) presented Congress with the free trade agreements with Australia and Morocco. The Australia agreement passed the House by a vote of 314-109, with Republicans favoring the agreement 198-24 and Democrats by 116-84. In the Senate, the vote was 80-16, with Republicans at 48-2 and Democrats at 31-14.
The Morocco accord passed the House 323-99, with Republicans on board by a margin of 203-18 and Democrats 120-80. The Senate vote went 85-13, with Republicans voting in favor by 46-5 and Democrats by 38-8.
Neither party offers a perfect record on free trade. But there seems to be some general agreement that more open trade is better for our economy. That is refreshingly wise economics.
However, as noted in a recent SBSC report grading the candidates on international trade, I am a bit worried about one Democrat in particular -- Senator John Kerry, who also happens to be the Democrats’ presidential candidate. The good news points to a strong pro-trade voting record, including votes for NAFTA, the 1994 General Agreement of Tariffs and Trade that set up the WTO, trade promotion authority in 1997 and 2002, and granting permanent normal trade relations with China in 2000.
But his more recent actions and rhetoric are cause for concern. Earlier this year, Kerry came out in opposition to the Central American Free Trade Agreement (CAFTA) – a proposed accord covering the U.S., Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica. Kerry missed votes last year on trade accords with Chile and Singapore, and missed this year’s votes on Australia and Morocco.
For good measure, his campaign has spoken of the need for “strong labor and environmental protections” in any trade accords. Of course, such rhetoric is the new code for protectionism, as everyone knows that other nations would not be willing to impose the United States’ burdensome labor and environmental regulations on their own economies. The result would be no trade agreements being signed. For good measure, Kerry spoke of the need to “fix” NAFTA and the WTO during the presidential primaries.
Indeed, substantial doubts exist that under a President Kerry the U.S. push to open up international markets would continue. If that became the case, the giant sucking sound would be economic opportunity leaving behind U.S. businesses and workers.
Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
