Sunday, November 12, 2017

NAFTA, Let US Favor "Regional Trade" Over Global Trade

A strong strategic dimension exists for NAFTA
While NAFTA is often decried as a reason many manufacturing jobs have fled America other reasons add to their flight and many of those are self-inflicted by our government. A very strong strategic dimension exists for NAFTA and when President Reagan fathered and endorsed the concept decades ago he recognized the need to create a powerful regional trade bloc to compete in a changing global economy. Reagan envisioned this would be vital as Europe and East Asia created their own regional economically self-sufficient trade arrangements and zones. Issues such as over-regulation, our inability to control healthcare cost, a complicated tax system all add to the flight of jobs to foreign lands. It is important not to blame NAFTA for more than its share of our problems and understand it can also be used as a tool not only to improve the "neighborhood" but at the same time insulate America from many of the abuses that come from China when it subsidizes industries to increase their market share.

We Have Lost Jobs To Mexico But More To China
Let's call a spade a spade. When we voice problems over trade issues when it comes to NAFTA  we are always talking about Mexico, however, a far greater problem stems from unfair trade from overseas. In its own self-interest America should return to the goal of a North America-wide economic revival, and when necessary, and if possible, even extend the efforts into South America. The main draw for outsourcing jobs and sending them overseas has always centered around two issues, low-cost labor and opening new markets for American companies to sell into, or what we often refer to as expanding new markets. Many companies have viewed the billion plus people of China as their future but in all honesty, this is an illusion because its leaders will never really open its borders to outside companies.

It is strongly ingrained in the DNA of China and its political system that they exploit outsiders by copying their products then competing against them at every turn. People often forget that China is an American made product and that their economic prosperity flows from the fact that decades ago America started down the perilous path to building China into a world power to counterbalance Russia and the Kremlin. Central to the American effort was offering the prospect of economic incentives to China, we combined this with a hard-line military response to communist aggression. As wealth flowed into China and it gained strength they made a point of playing us for fools and pilfered our technology while becoming more belligerent by the day. Why we should want to send our jobs and wealth across the oceans to countries that wish to rival us or do us harm makes little sense from a strategic point of view.

North American Supercorridor Concept
The fact that China has not been fair in trading with America is a major reason to strengthen ties with those closer to home. Not only would such a deal drastically expand their markets it would also dent the theft of intellectual property which is a massive problem when it comes to China. In 2016 the trade deficit with China was a whopping 319.5 billion dollars. We should remember that America is blessed with neighbors to both the north and south of us that pose no military threat and we should make the best of this situation. Originally NAFTA was sold to the American people under the idea it would strengthen our economy and security. Viewing this reality let us not forget the fact the area south of our border is full of people willing to work for low wages. So why ship goods across vast oceans when you can put them on a train that has access to all of the United States.

Trump Has Pledged To Renegotiate NAFTA
As the incomes of those to our south increase, they will consume more American made goods. The benefit of transferring jobs just across the border at least results in less need for a border wall, in fact as things improve in Mexico many immigrants here illegally will most likely return home on their own. To be perfectly clear, we should not confuse the concept of fair trade with free trade. Multinational companies and their powerful lobbyist have long fought for the freedom to build products anywhere in the world then sell them here in order to secure the lowest possible production costs and highest profits. Over the years the greedy companies who have benefited from sending our jobs overseas have spun a tale of how lower prices and jobs from things like shipping have more than offset the negatives from such policies but it is not true. Whether they have lied or been simply misinformed does not matter as much as the massive trade deficit which sucks wealth out of our country.

For decades we have carried countries such as China, Japan, and South Korea on our backs and allowed them to carry huge trade surpluses at our expense. Looking forward a strong case can be made that if  countries outside the region complain that tariffs we place on their goods or levy upon them violate World Trade Organization rules and vow retaliation, little question exist that the continent of North America is large and diverse enough to be self-sufficient, this means we should work closely with those living nearby to improve the neighborhood. With nearly 90% of the continent’s economic output, and buying power little question exist to the fact the United States can more or less write the rules. Make no mistake this is about jobs and tariffs. By requiring all goods sold in North America to be manufactured mainly in North America in order to avoid tariffs both Canada and Mexico would be big beneficiaries.

Footnote; A bit of research quickly confirms that the money Mexico receives by way of trading with America quickly passes through its lands and flows to Asia. It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route. More on the problem with this in the article below.

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