North America Needs More Integration, Not A Retreat From Trade

President Donald Trump campaigned on renegotiating the North American Free Trade Agreement, known by its acronym NAFTA, calling it an “unfair” deal that puts foreign workers ahead of American interests and that it was “badly made,” creating a trade imbalance and hurting U.S. producers. The leaders of Canada and Mexico, the other two nations that are members of NAFTA along the U.S., Justin Trudeau and Enrique Peña Nieto, respectively, have expressed a willingness to modernise specific provisions of the trade deal, but are wholly opposed to ending the agreement or legislating sweeping changes to its language. Trump continues to float the possibility that the United States may terminate NAFTA if the negotiations don’t go their way, which Republicans and Democrats in Congress, as well as business leaders and the governments of Canada and Mexico, are opposed to. Trump seems to be very alone on this matter.

President Nieto of Mexico and Prime Minister Trudeau of Canada met in Mexico City last week to hold talks on NAFTA renegotiat
President Nieto of Mexico and Prime Minister Trudeau of Canada met in Mexico City last week to hold talks on NAFTA renegotiation.

There are a few aspects of NAFTA that are in need of revisiting: Internet commerce was nonexistent when the agreement was negotiated. NAFTA was signed in 1993, long before the likes of Amazon, eBay and other internet market giants were around. In 2017, the most valuable U.S. companies are firms such as Apple, Alphabet, Microsoft, Amazon, and Facebook. There are intellectual-property issues that need to be sorted out, along with a few other issues related to digital commerce, telecom, and banking. The modern issue with NAFTA is about manufacturing. Trump (and other anti-trade politicians) has constantly repeated the mantra that NAFTA killed the U.S. manufacturing industry.

But American manufacturing is doing just fine, despite constant reports of its death. U.S. manufacturing output has, in fact, nearly doubled since the 1990s, when NAFTA was being negotiated. NAFTA is part of the reason for that: Our biggest export markets are Canada and Mexico. What has declined is manufacturing’s share of the work force, which is not by itself a bad thing. Our economy has become more tech-oriented and a lot more about service than manufacturing. NAFTA contributed to the explosive growth of the services sector of the U.S. economy, which has grown much more rapidly than manufacturing has and which now employs many more people. For a sense of scale, consider that financial services alone is a $1.4 trillion industry that accounts for more than 7 percent of U.S. economic output. That’s about twice the size of the automobile industry. And NAFTA has been a boon for other service-sector industries, too, from engineering to product design.

But while others are content with NAFTA remaining a low or zero-tariff free trade deal, going further, not backwards, may make more sense. In April of this year, I published a piece about why an EU-style Single Market might be better than the current arrangement, and that argument is made only stronger by the negotiations that have so far taken place between the U.S., Canada and Mexico. Disputes about Canadian lumber or Mexican VAT would be nonexistent if there was a transnational set of standards and tax policy. What would be accomplished would be a European Union-style border free economic treaty, harmonising areas such as finance, energy, telecoms, infrastructure, environmental protection, agriculture and fisheries, and education, and so on. Completely eliminating trade barriers and harmonising regulations among the national governments would ensure that North America operates uniformly in according with the highest market standards and would make the continent hugely competitive, given its current economic power.

If the U.S., Canada and Mexico were able to translate their regulatory regimes into a unitary mechanism, North America would be unstoppable. There are, of course, many technical hurdles that need to be addressed, chiefly the economic policies of the national governments and the process regarding the implementation of new measures, but we needn’t look further than Europe to learn how to harmonise legislation and regulation to make a continent competitive and growing.

Free trade agreements are a great way to open up market access and expand economies. They are also a great way to foster multi-national cooperation and advance globalisation, making the world’s economies more dependent on one another, reducing the likelihood of open conflict and isolationism. While Trump wants to move America’s trading relationship backwards, others have the courage to speak about moving it to the next step. Former Mexican President Vicente Fox supported the idea openly during his first campaign, saying he wants to see a "convergence of our two economies, convergence on the basic and fundamental variables of the economy, convergence on rates of interest, convergence on income of people, convergence on salaries." Moreover, he foresaw a U.S.-Mexico relationship that would "erase that border, open up that border for [the] free flow of products, merchandises, [and] capital as well as people". Many Canadian economists support "ambitious" goals like a single market, with some supporting a monetary union, but believing the incremental approach is more appropriate. The former Governor of the Bank of Canada, David Dodge, is quoted as having said that a monetary union is "an issue that should be considered once we have made more progress towards establishing a single market."

In March 2005, the Security and Prosperity Partnership of North America was formed by the heads of the three governments, which was a region-level dialogue with the stated purpose of providing greater cooperation on security and economic issues. The "amero" is the appellation given to what would be the North American Union's counterpart to the euro. It was first proposed in 1999 by Canadian economist Herbert G. Grubel. A senior fellow of the Fraser Institute think-tank, he published a book entitled The Case for the Amero in September 1999, the year that the euro became a virtual currency.

The ideas are out there. It will take time, but the idea of a North American Union should not go away. It should be fought for. The world should be moving forwards, not backwards.

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