“The economic impact of the deal (NAFTA) was immediately undercut by the collapse of the Mexican peso in 1994.”, William M. Daley, New York Times
Free Trade Is Not the Enemy
By WILLIAM M. DALEY
CHICAGO — IN 1993, President Bill Clinton tapped me as special counsel to lead the fight to pass the North American Free Trade Agreement. As a new trade debate rages in Washington, I’ve thought a lot about that effort. The mistake we made in the 1990s was overestimating the potential of Nafta’s positive impact. Today, we are making the mistake of underestimating what defeat of the Asia-Pacific deal would mean economically, globally and politically.
During the Nafta debate, America was on the precipice of great change. In plain view was the collapse of the Soviet empire, the further liberalization of China’s economy and the intensification of international efforts to integrate economies worldwide. On the horizon was a technological revolution to rival any we had known. In 1993, the Internet was made up of just 130 websites. President Clinton, who felt that a party that embraced the future would always win out over one that shrank from it, firmly believed that adopting Nafta was in the best interest of the nation, the middle class and the Democratic Party. So we muscled the agreement through Congress over fierce Democratic opposition.
The economic impact of the deal was immediately undercut by the collapse of the Mexican peso in 1994. But opponents’ predictions of “a giant sucking sound” accompanying the departure of millions of jobs from American workers never materialized, either. From Nafta’s ratification through the end of President Clinton’s final year in 2000, America added over 20 million jobs, including more than 300,000 in manufacturing. When the manufacturing decline began in earnest in 2001, the main culprits were the offshoring of jobs to China, with which we have no trade deal, and automation.
Now Congress is set to weigh in on the Trans-Pacific Partnership, which encompasses 12 nations on four continents and dwarfs Nafta in economic size and geopolitical importance. Once again, the debate takes place while we are in the midst of great change — a prolonged period of slow economic growth in the United States, China’s re-emergence as a regional power, and a new economic order in which the developing countries of the world produce more goods and services than North America, Europe and Japan combined. Many on the political left and right oppose the liberalization of trade policy, just as they did during the Nafta debate, arguing instead for protectionist measures. But they’re off-base.
There is no path to middle-class prosperity without tearing down barriers to American exports. By 2030, the world economy is expected to grow by $60 trillion, with almost 90 percent of the growth occurring outside the United States. Our success depends on how much of that new wealth is spent on American products. But today, of the 40 largest economies, the United States ranks 39th in the share of our gross domestic product that comes from exports. This is because our products face very high barriers to entry overseas in the form of tariffs, quotas and outright discrimination.
When barriers disappear, we prosper. In the 17 trade deals the United States has concluded since 2000, our balance of trade in the blue-collar-goods sector went from minus $3 billion to plus $31 billion, according to an analysis of government data by the centrist policy institute Third Way, on whose board I sit. According to the International Trade Administration, export-related jobs pay 18 percent more than similar jobs in the same sector.
Geopolitically, President Obama is also right. If we don’t set the rules for commerce in the Asia-Pacific region, China will. Since 2000, China has concluded trade agreements with 23 countries, Hong Kong and Macau and is now drafting its own Asia trade deal that cuts us out. This deal apparently omits any mention of labor rights and environmental standards common in modern American-led deals. It would keep many of the region’s economies relying on the same substandard factory floor conditions that China and other Asian nations used to become manufacturing giants.
But if the TPP passes, the poorer countries in the pact will have to conform more to the standards of the United States, Japan, Australia, New Zealand and Canada — all signatories to the proposed deal. The need for the China-led agreement disappears, and China’s economic fortunes will be tied to joining our alliance, which would necessitate raising its standards on labor conditions, the environment and the rule of law.
Finally, there is the question of politics. Denying the president the authority to negotiate an agreement to bring before Congress would be a serious rebuke. With much of the opposition coming from his own party, it would tell the nation that Democrats had lost confidence in the economic leadership of the man who steered us out of a near-depression. In effect, Mr. Obama’s own party would be stripping him of the same ability to negotiate trade agreements that every president since F.D.R., except for Richard M. Nixon, has enjoyed.
Nafta’s shadow hangs over this deal, but the truth is that both its upside and its downside are smaller than anyone likes to admit. Now we have a chance to guide a huge section of the world’s economy to reflect our own high standards for commerce. Why would we deny the president the opportunity to seize this moment?
Correction: May 21, 2015
An Op-Ed article on Tuesday incorrectly described South Korea’s involvement with the Trans-Pacific Partnership; it is not a signatory to the proposed trade agreement.
William M. Daley, a managing partner at Argentière Capital AG, was secretary of commerce from 1997 to 2001 and President Obama’s chief of staff from 2011 to 2012.
A version of this op-ed appears in print on May 19, 2015, on page A25 of the New York edition with the headline: Free Trade Is Not the Enemy.