Friday, May 15, 2015

NAFTA and Why Democrats are Gun-Shy on Free Trade Agreements

In 1992, the then-independent candidate for the presidency, Ross Perot, made a now famous comment on the proposed North American Free Trade Agreement (NAFTA) by saying that if it was passed, "there will be a giant sucking sound [of money] going south..."   Despite Perot's warning, President Bill Clinton signed NAFTA into law in 1994.

In that year, the United States had a net positive trade imbalance of $1.9 billion with Mexico; meaning that we exported more goods to them than they were able to import into the U.S.  But, by 2000, just 5 years after NAFTA realistically went into effect, our trade imbalance with Mexico became a net negative $24.6 billion dollars and Ross Perot was clearly proven correct.  In 2014, the negative imbalance more than doubled since 2000 at $53.8 billion.

The primary reason that Perot was correct is that, when free trade is allowed, previously protective tariffs and duties on imported products are removed between each of the agreeing countries.  So, for the U.S., that means that Mexico no longer had to pay tariffs on anyone of the 12,000 product-specific imports that we previously had in effect.  Thus, thousand of made-in-Mexico products just got a lot cheaper; and, a flood of that merchandise became much more attractive to American buyers on the basis of cost.  As a result, many Americans lost their jobs. The inverse is not necessarily true -- especially with lower wage countries like Mexico -- because even with the lifting of tariffs and duties, American made products are still too expensive for the average Mexican to buy.

Now, in an odder than odd-couple moment, Obama and the Republicans joined together to push a Trans-Pacific free trade agreement that covers trade between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.  Like NAFTA, there are just too many poor countries in this agreement,       (Chile, Peru, Vietnam), who could also bring back another roar of "sucking sounds" like that of Mexico. Our trade imbalance will only get greater and people will lose more jobs.

This is basically why, not a single Democrat will approve the agreement, and for once, I have to say that I'm with them on this one.


Giant Sucking Sound:

Why almost everyone hates the trade deal Obama’s negotiating in Japan:

Obama: Elizabeth Warren Is 'Wrong' On Trade:

25 American Products That Rely On Huge Protective Tariffs To Survive:

Foreign Trade With Mexico:

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