Making sense of the Clinton/Obama NAFTA spat.

Commentary about business and finance.
March 4 2008 4:37 PM

NAFTA Nonsense

Explaining the Clinton/Obama spat over trade policy.

Barack Obama and Austan Goolsbee. Click image to expand.
Barack Obama and Austan Goolsbee

Of all the twists and turns in the Democratic primary campaign, one of the strangest is the return of the North American Free Trade Agreement, which went into effect in 1994 and broke down trade barriers between the three massive, contiguous nations that dominate the northern portion of the Western Hemisphere.

Campaigning in Ohio, a formerly industrial state that is rapidly becoming a postindustrial state, both Hillary Clinton and Barack Obama expressed reservations about the trade deal and suggested it might need to be revisited. Clinton tried to make a meal over a report that Obama economic adviser Austan Goolsbee, a University of Chicago professor and an occasional Slatecontributor, told Canadians that Obama's anti-NAFTA rhetoric was just for show and that they should trust in Obama's free-trade credentials.

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There's something outdated and Kabuki-like about the whole NAFTA drama, which was manufactured largely for consumption in Ohio and probably won't be going on a national tour.

Nationally, China has long since displaced Mexico as the bugaboo on trade issues. And it's increasingly difficult to argue that NAFTA has been a national tragedy. Yes, U.S. imports from Mexico have risen sharply since 1993, from $48 billion to $216 billion in 2006. But U.S. exports to Mexico have tripled in the same period, from $52 billion to $156 billion. In 2007, according to the Department of Commerce (PDF), trade with Mexico—America's second-largest trading partner—accounted for less than 10 percent of the trade deficit. The truly massive imbalances in trade these days result from 1) the rising volume of oil purchases from oil-producing countries and 2) the rise of imports from truly poor countries, such as China, which can't yet afford significant American imports. The fact that Mexican firms now export large quantities of goods to Canada and the United States means they are creating jobs—and incentives—for Mexicans to stay at home. In some ways, NAFTA has been a boon for nativists. Just think how much higher the northward flow of work-seeking immigrants from Mexico would have been in the absence of NAFTA.

Mexico and Canada aren't really Ohio's main problems. The last time I visited the state, I went to a steel plant outside Cleveland where one of the furnaces was being dismantled and sent to … China. The state, which has lost large numbers of manufacturing jobs, is currently experiencing the negative aftereffects of an economic boom (high unemployment and foreclosure rates), even though it never felt many of the boom's benefits. So what accounts for the state's visceral hostility to NAFTA? The Wall Street Journal yesterday published a poll showing that Democrats in Ohio disapprove of NAFTA by a 59-13 margin. (In Texas, only 40 percent of Democrats disapprove while 33 percent approve.) As my Newsweek colleague Keith Naughton notes, Mexico holds a special symbolic status for employees of automakers and similar smokestack industries, which used to be large presences in Ohio and which moved big chunks of their production south of the border in the 1980s and '90s.

I also think there's something deeper at work. For the purposes of the Ohio primary, NAFTA is a two-syllable shorthand for the larger problems of trade policy. It's less about NAFTA than what came after. Call it the Great Risk Shift, or the cram down, or the fraying of the safety net. But people who have blue-collar jobs, or who have lost them, have suffered a series of blows over the past three decades: stagnant wages, job insecurity, rising health costs, and the loss of insurance and pension benefits. Free trade is a factor—not the factor, but a significant factor—behind these trends. Unfortunately, the policy response from the Bush administration and from the Republicans who have, until recently, dominated Congress has been: Suck on it. This decade, Washington has been quick to remind the public of the benefits of free trade, which are real, but has offered painfully little to those hurt by its effects. Even long-winded politicians speak in code and shorthand. And when Clinton and Obama traipse through Midwestern de-industrializing states and promise to revisit NAFTA, they're not really saying they want to stop the flow of goods and services from Mexico and Canada. They're trying to send a signal—clumsily, perhaps—that they understand that free trade hasn't been an unalloyed good.

Clinton has charged Obama with making calculated remarks in front of one audience while sending equally calculated signals to a broader constituency—which is a triangulator calling a three-sided figure a triangle. Goolsbee denies whispering sweet nothings about trade into Canadian ears. But even if he did, what's the big deal? It could be hypocrisy—or posturing. But there's another name for it: campaigning. And this is how mainstream Democrats practice politics these days. (On trade, Obama and Clinton are actually probably a little right of center.) They tell aggrieved members of the base (blue-collar workers) that they understand their pain, and they tell the more-satisfied members of their base (globalists, Wall Street types) that they're not going to upset the manzana cart.

Don't expect talk about NAFTA to disappear. The Pennsylvania primary is coming up, after all. But Canadian policymakers—and American voters—shouldn't need Austan Goolsbee or anybody else to tell us that viable Democratic candidates for national office will 1) make negative comments about free-trade deals while campaigning in a state where hundreds of thousands of blue-collar manufacturing jobs have been lost and yet 2) be committed to free trade should they happen to win.

Daniel Gross is an editor and columnist at the Daily Beast.