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The Last Word

Free, but fair trade

By Shannon Everett

Over the last two years, the current administration has really started to challenge the trade policies that have been constructed over the last three decades. The benefit that we have today is an ability to measure the results of these trade agreements against the assumptions that were made when they were passed. Two key beliefs that were held by the architects of the North American Free Trade Agreement were that there would be a trade surplus and increased living standards for the partner countries.  It is very important to understand these assumptions and why they are flawed.

Let’s start with the theory of a trade surplus.  One of NAFTA’s key architects, Vice President Al Gore, made the following prediction on the Larry King Show in 1993 during his debate with Ross Perot, “We will have a larger trade surplus with Mexico than with any other country in the world”. Today, we have a deficit—a large one. Some economists argue that we should not focus on the deficit numbers because a deficit doesn’t always correspond with an ailing economy. I tend to disagree. 

In 1992, the United States had turned around a $5.7 billion deficit with Mexico into a trade surplus of $5.3 billion. Gore and other NAFTA supporters predicted the surplus would keep growing under the agreement, but by 1995, the United States Census reported a trade deficit with Mexico of $15.8 billion. Since then, the deficit has been more or less continually expanding and now exceeds $70 billion (See page XX).

For trucking companies, there’s business to be made in supporting this free trade agreement.  In my experience there is an abundance of demand for shipments coming north out of Mexico and a lackluster amount of demand for shipments destined back south into Mexico. But just because there is good business for trucking companies doesn’t mean it’s a sustainable practice for our economy or necessarily good for the American people to continually import more than we export.

Another belief of the architects was that passing NAFTA would increase the standard of living in Mexico and Canada. In doing so, a new base of consumers was expected to drive consumption higher and benefit trade amongst the partner countries. The problem with this belief is the assumption that our trading partners would be able to increase wages with their labor force and remain competitive in the market place. When you look at the current average wages reported for the three countries in NAFTA, you will find that after 24 years of being in NAFTA, we still have a large disparity of wages among the partner countries. According to the Organization for Economic Co-Operation and Development, the average gross wage for a worker in the United States is $60k (up 34% since 1993), the average wage in Canada is $48k (up 39%), and the average wage for a worker in Mexico is $15k (static) in 2016. In hindsight, we can see that while the average worker in Mexico may have benefitted from better employment statistics, they have not benefitted from an increased standard of living.

Herein lies the root problem with this agreement. NAFTA is not sustainable because it’s not equally benefitting all parties. Sure, one could say the United States has benefitted from cheaper goods, but we also sacrificed unprecedented job losses. Another might argue that Mexico has benefitted from job creation over the last two decades, but they missed their opportunity to increase their standard of living through increased purchasing power.

We need new negotiators at the table with a renewed focus on what benefits all three trading partners.  The solution should be one that increases the purchasing power of the people not currently engaged in the same level of consumption. We need a new agreement so that we can generate prosperity and bring new consumers into the marketplace. 

Free trade is still the winning solution. It just needs to be fair trade at the same time. After 24 years, we can re-examine the assumptions that prompted the original North American Trade Agreement and cut a new deal. Ross Perot once said, “Measure twice, and cut once”. Let’s make sure we don’t let the wrong people hold the measuring tape.

Shannon Everett is the EVP and COO of Rich Logistics, an Arkansas trucking company with a specialization in cross border services. Everett also serves on the Arkansas Trucking Association Self-Insurers' Fund board of trustees.

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