Transcript Security Scenarios And The Global Economy

NS3040
Fall Term 2014
NAFTA
NAFTA
• NAFTA very controversial trade treaty – many axes to
grind and much dis-information
• Sidney Weintraub, “Scoring Free Trade: A Critique of the
Critics” – U.S conservative view
• Jorge Castaneda, “NAFTA at 10: A Plus or a Minus?”
Mexican view – more liberal approach
• Gary Hufbauer and Jeffrey Schott, NAFTA’s Bad Rap –
technocratic view – very critical of political
disinformation
• Uwe Deichmann and Indermit Gill, The Economic
Geography of Regional Integration”
• Not NAFTA specific, -- outlines the favorable view of
regional economic integration, The New Economic
Geography
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Weintraub I
• Makes point early on that any critique of NAFTA or other
regional grouping must first establish a credible counterfactual – what would be the situation without NAFTA?
• Critical of those who stress job loss from NAFTA
• In reality pretty much a wash – jobs gained and lost
• Use other methods to create jobs – trade very inefficient
in that regard
• Criticizes argument that the balance of payments deficit
is a sign the U.S. “loses” as a result of NAFTA – a new
Mercantilist argument
• -- fact is the defect simply reflects comparative
advantage and Mexican energy exports to US.
• If we did not import energy from Mexico it would have
come from elsewhere
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Weintraub II
• There will always be gainers and losers from regional
agreements –
• We don’t stop flying in airplanes just because a few crash
• Trick is to compensate the losers
• With the counterfactual it is clear that U.S. job loss would
have occurred without NAFTA – would have been lost to
China or SE Asia
• To judge NAFTA need to look at its purpose – to increase
trade and investment – clearly has done this
• Mexican growth has not been great during the first 10
years of NAFTA
• Argues that is simply result of poor policy making in
Mexico – very low taxes, poor education system, lack of
reforms in energy, telecoms.
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Weintraub III
• Mexican agriculture hard hit
• Country had fifteen years to undertake reforms and
create jobs outside agriculture but failed
• When quotas lifted on U.S. grain imports, many farmers
went under – Mexico should have anticipated this.
• Mexican wages did not increase much
• Weintraub feels this is more a demographic effect – high
population growth and many new entrants into Mexican
work-force
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Castaneda I
• Former Mexican Foreign Minister under Fox
• Was not for NAFTA at the start – now accepts it as a fact
of life
• Mexico was a very closed economy until debt crisis of
1982. Economy stagnated under import substitution
• Mexican Presidents wanted to open Mexican economy to
find new sources of growth – exports, increased
productivity
• Joined GATT in late 1980s and NAFTA in early1990s
• President Salinas wanted the shift to be irreversible so
that future Presidents could not reverse the process
• Apparently Mexico felt that they could industrialize fast
enough with NAFTA to create jobs for those forced off
the land by U.S. agricultural imports.
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Castaneda II
• Castaneda seems to feel Mexico has not benefitted much
from NAFTA and that more could have been done
• Cites EU program to support development in more
backward regions
• Argues compensatory financing to help those hurt from
NAFTA would be in everyone’s advantage
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NAFTA’s Bad Rap I
• Authors quite critical of U.S. politicians – either very
uninformed or very cynical
• The fact is:
• NAFTA has added about $60 billion annually to U.S
economy -- $200 per American
• Rewards from economic integration exceed costs by ratio
of 10 to one or better
• To politicians who argue we should withdraw from the
pact, authors point out – jobs lost, exports lost and our
neighbors would no longer trust us.
• Again, counterfactuals are important – what would have
happened in the absence of NAFTA?
• If can’t have a credible answer then estimates very suspect.
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NAFTA’s Bad Rap II
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Authors look at critics of NAFTA in four main areas
NAFTA destroys U.S. manufacturing jobs
NAFTA suppresses U.S. wages
NAFTA has worsened the U.S. trade deficit and
NAFTA abets immigration from Mexico
Jobs Lost?
• NAFTA has probably had no net effect on U.S. Employment – in
early years of NAFTA the U.S. economy was creating all kinds of
jobs
• Even if as President Obama contends 100,000 jobs are lost
annually due to NAFTA that is only six tenths of one percent of
the annual churn of the U.S. labor market
• Most of the jobs lost would have been lost to other developing
countries anyway
• Other side of coin – many U.S. jobs depend on trade with
Mexico
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NAFTA’s Bad Rap III
• U.S. wages depressed?
• Authors argue blue collar wages in decline long before NAFTA
• Main factor is technology
• Actually, wages in the states with the most trade with Mexico
have had wage growth above the national average
• Larger trade deficit?
• As we will see in the second half of the course trade deficits are
caused more by macroeconomic imbalances not trade per se.
• Besides a trade deficit may just reflect the fact that the U.S. grew
faster than Mexico during most of this time.
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NAFTA’s Bad Rap IV
• Immigration woes?
• NAFTA contains little about immigration
• In contrast to politicians, serious demographers forecast
• Increased inflows of Mexican migration to U.S in 1990s and
2000s
• Followed by declining flows for two or three decades
• Forecasts are based on Mexico’s
• demographic structure
• Rapid growth in working age Mexican population between 1995
and 2015
• Slower growth in later years
• The big flow of migrants to US right after NAFTA due to
poor economic conditions in Mexico – major recession
following peso collapse
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NAFTA’s Bad Rap V
• Conclude that Mexican economy has under-achieved
• But not because of NAFTA
• Mexican political system did not deliver tax and energy
reforms needed to generate new resources for
• Infrastructure
• Education
• Nor has it succeeded in eradicating corruption and narco
traffickers
• Areas for the future –
• Labor and Environmental standards important
• Border security cooperation
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NAFTA Update 01-2014 I
• Oxford Analytica, NAFTA Boosted Global
Competitiveness, January 7, 2014
• Main observations:
• NAFTA’s success – sets precedent for other trade deals
• NAFTA has facilitated rapid growth in trade, business investment
and supply chains across the region
• However NAFTA cannot address many of the current challenges
that businesses face in a more tightly integrated market
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NAFTA Update 01-2014 II
Analysis
• Mexican energy reforms could greatly boost the regional
economy
• Energy will continue to be one of the major comparative
advantages enjoyed by the regional manufacturing sector
• US energy export and Canadian infrastructure
development could significantly reshape the regional and
global energy industry
• When NAFTA came into effect on January 1, 1994 it was
the most ambitious trade deal outside the EU
• Today the U.S., Mexico and Canada form the largest
trading bloc in the world with a combined GDP of $19
trillion.
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NAFTA Update 01-2014 III
For the parties to the agreement NAFTA
• Eliminated all tariffs and quotas on goods falling under North
American rules of origin
• Opened up the market for services, with the exception of
aviation and maritime transport and basic telecommunications
• Opened up federal procurements for goods, services and
construction contracts
• Strengthened intellectual property rights
• Guaranteed national treatment of business investment
• Facilitated temporary entry for business travelers
• Established governmental and investor dispute settlement
procedures
• Supplementary agreements
• committed each country to effective enforcement of its environmental
and labor regulations
• created commissions for environmental and labor cooperation.
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NAFTA Update 01-2014 IV
Economic Success?
• NAFTA has become a model for many of the regional
trade agreements
• Overall legacy is more complex
• Economic impact more difficult to decipher
• Since NAFTA came into effect the North American
Economy has more than doubled in size
• Trade among the NAFTA partners has more than tripled
since 1993
• Still, fair to say that NAFTA has not been the only or the
most significant factor affecting economic or
employment trends at either regional, national or
continental levels
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NAFTA Update 01-2014 V
• Other factors affecting output and employment trends in
North America
• Introduction of competition from China and other emerging
economies
• Accelerating pace of technological change
• Public policy decisions
• Financial crises and recession
• Have all had more powerful affects on economic and
business performance than NAFTA
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NAFTA Update 01-2014 VI
• Agreement has been very important in reshaping regional
business
• NAFTA has enabled US, Canadian and Mexican business
to diversify their presence across North America
• Also enabled firms to rationalize and expand or
consolidate production activities, distribution systems
and supply changes
• As a result firms have become more flexible, competitive
and productive
• Today over 60% of all North American merchandise trade
flows and 75% of services trade takes place as intracorporate transactions or within tightly held network of
suppliers and distributors
•
Means benefits of expansion felt rapidly and widely.
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NAFTA Update 01-2014 VII
• Shortcomings – NAFTA fails to address five critical
challenges that now face business operating in a more
integrated market:
• More complicated, time-consuming and expensive security and
customs procedures have been established at borders
• Recent survey indicates that 48% of Canadian manufacturers
are exporting less to US and 32% are importing less from US as
result of worsening conditions at border
• More stringent immigration enforcement proceedings have
eroded benefits of temporary entry provisions under NAFTA
• Mounting costs of unnecessarily regulatory requirements
imposed on goods and services
• Lack of alignment with respect to cross-border infrastructure
planning and investment.
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NAFTA Update 01-2014 VIII
• NAFTA members are attempting to address these issues
on a bilateral basis:
• Launching initiatives to improve security and efficiency and
border infrastructure
• Enhance regulatory cooperation
• Eliminate procurement restrictions and
• Facilitate legitimate travel while strengthening enforcement rules
• To date efforts have done little to remedy the new barriers to
continental trade
• NAFTA fallen short of providing the bases for a more
concerted North American approach to trade negotiations
• 3 governments continue their independent approaches
• Unwilling to develop a common negotiating strategy tat would
take the integrated nature of North American market into account
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NAFTA Update 01-2014 VIX
Outlook
• Standard for international trade agreements is no longer
being set by NAFTA but by regional and bilateral TransPacific and Trans-Atlantic negotiations
• These emerging deals may eventually provide other
trading partners better access to North American markets
than that guaranteed to NAFTA partners themselves
Conclusions
• Twenty years after coming into effect, NAFTA has proved
unable to new challenges facing the market such as
• Increased border security
• Greater immigration restrictions
• Misaligned regulatory requirements
• Nevertheless has made US, Canadian and Mexican
businesses far more globally competitive
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U.S. Trade With NAFTA Countries
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U.S. Mexico Market Shares
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U.S. Canada Market Shares
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