So what’s the deal with NAFTA and TPP

There have been a lot of talk regarding NAFTA and TPP but it doesn’t seem that there has been a lot of understanding of what either actually is. Donald Trump, in particular, doesn’t seem to understand the basic concepts behind either.    So let’s talk about both a little.

NAFTA stands for the North American Free Trade Agreement.  It was a long negotiated agreement between the United States, Mexico,  and Canada to loosen tariffs between the 3 countries.   It’s entire point was to increase trade between the 3 countries and there is little question it did.

 

Before we talk about the specifics of NAFTA, let’s talk about whether it achieved its objective of expanding trade between the 3 countries.

In 1992 the United States and Mexico had 35 billion in exports to Mexico and 40 billion in imports from Mexico.   The United States and Canada had 90 billion in exports to Canada and 98 in imports from Canada.

In 2016 the United States and Mexico had 236 billion in exports and 296 billion in imports.  The United States and Canada had 280 in exports and 296 billion in imports.   In other words, Mexican trade went from 75 billion a year to 531 billion in exports.   Canadian trade went from 188 billion a year to 576 billion a year.  So over the course of 20 years after NAFTA trade with Mexico increased 700% and 300% with Canada!

 

Country 1992 Imports 1992 exports 2016 Imports 2016 Exports; Total Increase Increase in %
Mexico 35B 45B 295B 236B 456B 700%
Canada 90B 98B 296B 296B 280B 300%

 

So when people say that the NAFTA deal is a “disaster” they are either lying to you or utterly ignorant about what NAFTA did.   Rather than talking about the actual merits of free trade, they are using scare tactics to tell you that fair trade is destroying our economies.  Eliminating NAFTA would cause a MASSIVE drop in our GDP.

So what did NAFTA actually do?  NAFTA set up a trade framework in which  all 3 countries agreed to eliminate tariffs on SOME goods.  They also set up a mechanism in which each country could file a grievance if any other country did anything they shouldn’t.

In other words, they spent years creating a complicated framework that would help each country.   OF COURSE, this was likely to lead to trade imbalances against the United States.  Mexico and Canada collectively have a population that is 40% the size of the United States.  Their combined GDP is slightly larger than the GDP of California.

Which is not to say that NAFTA is perfect.  No trade agreement is perfect.  But the notion that eliminating NAFTA would somehow help Americans is a complete fiction and a dangerous one.

So what is TPP?  TPP is a similar trade deal to NAFTA although far less aggressive in lowering tariffs.  It is an attempt to both open markets in Asia AND to create closer ties with those markets and the United States to counter the growing economic influence of China in that region.    The protectionist claims against TPP make even less sense than the claims against NAFTA, as there are all sorts of logistical limitations to sending manufacturing to Asia that was here.

Perhaps there are things we should change in TPP but the political jingoism railing against it aren’t helping moving this country forward.

 

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