Do you have to like NAFTA to want a trade deal with Asia?
Trade skeptics contend that past trade agreements failed to deliver, and they point to NAFTA as an agreement that changed our trade balance with Mexico from one of surpluses to one of deficits.
Trade proponents argue that a broad new trade agreement with Asia — the Trans-Pacific Partnership (TPP) — is essential for the American middle class. They note that, by 2020, the Asia-Pacific middle class will expand by more than 1.2 billion and will make up half of the world’s middle class consumers. They point to high tariffs, discriminatory government subsidies, exclusionary standards and regulatory practices that today keep Made in the USA products off the shelves — which could be addressed in a deal. And if we don’t set fair rules, they say, then China will set the rules for us.
Fair enough. So is NAFTA the right yardstick?
We’re math geeks at Third Way, so we studied all of the trade deals concluded by the United States since NAFTA — 17 countries in all — to see whether they increased Made in the USA exports to these countries, or hurt them. Because the U.S. has such a consistent and overwhelming trade surplus in services, we looked only at whether these deals improved the U.S. balance of trade in goods. We chose post-NAFTA deals because those deals were negotiated based on the lessons learned from NAFTA — namely, the need for higher and more enforceable standards.
Here is what we found: nearly all recent trade deals have improved our balance of trade in goods, and in the aggregate the gains have been substantial. How substantial?
- In 13 of 17 countries, the U.S. balance of trade in goods improved after the free trade agreement (FTA) implementation.
Trade balances in goods improved with Singapore, Panama, Australia, Peru, Dominican Republic, Colombia, Chile, Guatemala, Honduras, Morocco, El Salvador, Oman and Bahrain. Trade balances worsened with Korea, Costa Rica, Jordan and Nicaragua.
- On an average annual basis, the balance of trade in goods improved by $30.2 billion (in 2014 inflation-adjusted dollars) post-FTA among all 17 nations in the aggregate.
The balance of trade improved the most with Singapore ($11.9 billion) and fared the worst with Korea, where its slowing economy contributed to a weakened trade balance (-$4.8 billion). Beyond Singapore, the balance in the goods trade improved the most with Panama ($5.5 billion), Australia ($5.4 billion), Peru ($3.5 billion), Dominican Republic ($2.8 billion), Colombia ($2.8 billion) and Chile ($2.3 billion). Beyond Korea, the balance in the goods trade worsened by quite a bit with Costa Rica (-$3.5 billion). When all 17 nations are put together, the average improvement in the trade balance on goods is $1.8 billion per nation after FTA implementation.
- In 2014, the U.S. had a $30.9 billion surplus in the goods trade with these 17 countries.
This compares to a $2.8 billion deficit with these same countries in the final full year for each country pre-FTA.
- The rate of increase for U.S. exports doubled the rate of increase in U.S. imports involving these 17 nations post-FTA.
After FTA implementation, U.S. goods exports to these 17 nations increased by an average of 52 percent on an annual basis in 2014 dollars. U.S. goods imports increased by just 25.6 percent.
Many policymakers and interest groups reflexively oppose new trade deals based on old ideas about trade dating to NAFTA — an agreement that represented hugely important achievement in opening up markets but, as President Barack Obama has said, a deal which fell short on some of its promises. However, that was 21 years ago, which is a long time for the NAFTA hangover to last.
Since NAFTA, our trade deals have been markedly better — with higher standards and better enforcement. They’ve delivered the goods, literally, turning goods deficits into surpluses.
If TPP does nearly as well as the last 17 trade agreements, it will put more Made in America products on foreign shelves and increase opportunity for the middle class. That is irrefutable.
Jim Kessler is Senior Vice President of Policy at Third Way. Gabe Horwitz is Director of the Economic Program at Third Way.
This piece also appears in Ideas Lab.