NAFTA – Reagan’s Bold Vision – Trump’s Self-Serving Crisis (#58)

The North American Free Trade Agreement (NAFTA) was the grand vision of Republican President Ronald Reagan. In his words, a tri-country ‘accord’ that would elevate all three countries to above what they could achieve on their own; “a North American accord - would permit achievement of that potential in each country beyond that which I believe any of them - strong as they are - could accomplish in the absence of such cooperation,”. Ronald Reagan’s vision was backed and worked on by his brilliant Chief of Staff and Treasury Secretary, James Addison Baker III, who has been described as ‘a brilliant strategist, a skillful negotiator, a superb consensus builder, and a man that made Washington work’.

By the estimation of 95% of American experts on NAFTA, it more than fulfilled its potential, growing trade between the three countries by an estimated 3X the growth rate of their respective GDPs. And according to most economists and experts, the stability of trade, created by NAFTA, increased investment in the three countries significantly, and made manufacturing competitive enough to stave off competition from China, for years. Yet according to Donald Trump, NAFTA was ‘a horrible … worst trade deal ever’.

As usual, Donald Trump’s assessment was not only not factual, but farcical and devoid of reality. He knows reality goes against him, and his base. But, even more incredulously, to think that Trump thinks that he is somehow more intelligent and competent than Ronald Reagan, George H. W. Bush and Bill Clinton, combined, all of whom advanced the NAFTA, with the help of some of America’s most capable administrators, like James Baker III, who served under three Presidents, is simply ludicrous.

NAFTA has been what Ronald Reagan had hoped it to be, one of the greatest ‘Trade Agreements’ in the World. The agreement between three countries, the U.S., Canada and Mexico, was proposed and pushed by Ronald Reagan, advanced by his successor Republican President George H.W. Bush, and when it was fully ratified by the U.S. Congress in 1993, it was under the Presidency of Bill Clinton, a Democrat. Three American administrations, two Republican and one Democrat, saw the greater economic, political and social potential of the three North American countries working together, in a stable unified purpose, as being more beneficial for each country than working separately for their own individual benefit; and that is exactly how it turned out.

At that time, in 1993, NAFTA created the World’s largest free trade market of approximately 360 Million people, with a combined economic output of some $6 Trillion per annum, by eliminating tariffs on a vast number of goods and services between the three countries, stabilizing the investment and labor markets, and ensuring the best goods and services for the consumers, at the best prices.

At that time the free trading zone created was larger than the emerging European Union, and the trading block of South East Asia, dominated by an innovative business powerhouse, Japan.

Most importantly, in this day of hyper and at times demented partisanship, it is important to know, and remember, that NAFTA was proposed by Ronald Reagan and, in its most developed form, was the work of a Democrat Bill Clinton, who saw the merit in the work of Reagan and the first Bush, both Republicans, and not only embraced their work but wanted to extend it further, to the Latin American Countries.

The Chart below shows graphically, the benefit of NAFTA to the GDP growth of each participating country. It also counters the lie oft repeated by Trump that America was being taken advantage of and was the greatest loser in its “worst deal ever”. Not at all true, as shown below.

The Chart and some of the numbers used (above) in this article are from The Heritage Foundation a Conservative Policy Think Tank, a bastion of conservative values since its foundation in 1973 - “The mission of The Heritage Foundation is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.

To illustrate some of the numerical benefits to America of NAFTA, from 1993 to 1917, we take the numbers quoted below, by an American economic and finance expert Kimberly Amadeo (writing for the Balance), to deflect any accusations of bias from a Canadian author.

Between 1993 to 1917 (1917, the year when Donald Trump became the President of the U.S.)

  • The economic output of the three countries went from approximately $6 Trillion to $23.6 Trillion: America $19.3 Trillion; Canada $1.76 Trillion; and Mexico $2.4 Trillion

  • Trade between the three countries increased from $297 Billion to $1.17 Trillion (per year). America’s exports to the two countries increased from $142 Billion to $525 Billion, an increase of 3.7 times, which is approximately 33% of its total exports to the World. Canada and Mexico were the two largest exports markets of the U.S.’s. Imports from the two countries were $614 Billion from $151 Billion, an increase of 4.0 times. The slightly higher inflows to the U.S. were due to economic fundamentals like cost, not because of bad policies. [As can be seen that while trade increased both ways significantly, the trade was almost balanced. Nothing even close to ‘we are being robbed’ scenario consistently painted by Trump.

  • The free trade between the three countries resulted in significantly lower consumer prices in America, which drove down inflation well below the Fed’s target rate, and allowed it to drive down interest rates to historically low levels when it desperately needed them after the 2008 crisis to turn the economy around from its steep nose dive, and of which Trump has been a beneficiary so far.

  • NAFTA decreased America’s need to import energy (oil, gas, & electricity) from far off hostile and unstable regions and countries, by increasing its purchases from its friendly neighbors and now trading partners, Canada and Mexico.

  • Similarly, trade between the three friendly free trade countries lowered food prices for all consumers.

  • Under NAFTA, American farm exports increased by 156% to Canada and Mexico. That compares to a 65% increase to the rest of the World (more than double). Farm exports to Canada and Mexico were larger than the next 6 countries combined!

  • NAFTA modernized the American Auto Industry and helped it compete more effectively with foreign imports, especially from Japan, the largest auto importer to the U.S. prior to the 2008 crisis, thereby preserving American jobs. Post 2008, most of the auto industry jobs would have gone to China if it had not been for NAFTA.

  • NAFTA preserved and safe-guarded foreign direct investment in all three countries, by eliminating the risk of expropriation and nationalization by foreign governments of private investments.

  • NAFTA guaranteed protection of ‘Intellectual Property’ rights. Something that a lot of other countries never quite did, like China, in which there was a lot of American investment at risk.

President Ronald Reagan was a visionary, and while some of the initiatives undertaken by him like low taxes and high deficits were not some of his successes, but NAFTA, by all expert analysis was a resounding success, greatly enriching all three countries involved, particularly America (again, please see the Chart above).

Now, after more than three decades, NAFTA could have been updated, particularly in light of the significantly changed World since its inception and decades of execution, with the advent and domination of the digital economy, and of course the rise of China. But a friendly non-crisis like atmosphere would have done, rather than the ugly threats and reality TV drama that Donald Trump favors just to make himself seem important. He is no Ronald Reagan, as he proves every single day, and to compare his vaudeville like antics to the visions and accomplishments of the Reagan administration is literally laughable.

Reagan was all about ‘tearing down walls’ and barriers, to international cooperation and joint-prosperity, compared to Trump’s need to 'build walls’ and hide behind them in fear and suspicion, in American isolation, which in the past have led to wars and poverty through eventual economic stagnation.

Ronald Reagan’s legacy is preserved forever in the smashed ‘Russia’s Berlin Wall’, the collapse of the old Russian ‘Super-Power’, the Soviet Union, and the greatest trade agreement of its kind, NAFTA (in totality, the Rise of America).

The new trade agreement between America, Canada and Mexico is now called: the United States - Mexico - Canada Agreement, (USMCA) - which sounds more like one of Trump’s bankrupt universities than a Trade Agreement, but nevertheless, it’s a slightly modified and updated version of the old NAFTA.

The USMCA Agreement still has to be ratified by all three governments, so it may not take effect till 2020. But one can be sure that an updated version of the old NAFTA will be approved by all three governments, and therefore Ronald Reagan’s, not Donald Trump’s legacy will survive, and that agreement will make all three neighboring countries continue to thrive, in spite of Trump, as he continues to preside over the isolation and steady decline of America.

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