The Democrats and NAFTA-bashing

Both Hillary Clinton and Barack Obama said in Tuesday's debate that, if they were president, they would renegotiate NAFTA. This is a popular thing to say in Ohio. But, as an article in the New York Times pointed out it would be wrong to blame Ohio's economic decline on NAFTA.

The first problem with what the candidates have been saying is that Ohio’s troubles haven’t really been caused by trade agreements. When Nafta took effect on Jan. 1, 1994, Ohio had 990,000 manufacturing jobs. Two years later, it had 1.03 million. The number remained above one million for the rest of the 1990s, before plummeting in this decade to just 775,000 today.

It’s hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed.

A more important cause of Ohio’s jobs exodus is the rise of China, India and the old Soviet bloc, which has brought hundreds of millions of workers into the global economy. New technology and better transportation have then made it easier for jobs to be done in those places and elsewhere. To put it in concrete terms, your credit card’s customer service center isn’t in Ireland because of a new trade deal.

All this global competition has brought some big benefits, too. Consider that cars, furniture, clothing, computers and televisions — which are all subject to global competition — have become more affordable, relative to everything else. Medical care, movie tickets and college tuition — all protected from such competition — have become more expensive.

I thought Democrats were running on how they were going to improve our relations with other countries. How is demonizing Canada and Mexico, our closest neighbors and threatening to pull out of our free trade agreement with them if they don't agree to renegotiate going to improve our relations>

Of course, perhaps they don't mean what they're saying. CTV claims that an aide of Obama's told the Canadian ambassador that Senator Obama's anti-NAFTA rhetoric were, in effect, just words.

Within the last month, a top staff member for Obama's campaign telephoned Michael Wilson, Canada's ambassador to the United States, and warned him that Obama would speak out against NAFTA, according to Canadian sources.

The staff member reassured Wilson that the criticisms would only be campaign rhetoric, and should not be taken at face value.

But Tuesday night in Ohio, where NAFTA is blamed for massive job losses, Obama said he would tell Canada and Mexico "that we will opt out unless we renegotiate the core labour and environmental standards."

Late Wednesday, a spokesperson for the Obama campaign said the staff member's warning to Wilson sounded implausible, but did not deny that contact had been made.

"Senator Obama does not make promises he doesn't intend to keep," the spokesperson said.

Low-level sources also suggested the Clinton campaign may have given a similar warning to Ottawa, but a Clinton spokesperson flatly denied the Canadian embassy deny this report

As Jim Geraghty writes,

Then again, did anyone expect the Ambassador's office to come out and say, "yes, I will confirm this tremendously damaging report about Senator Obama several days before contests where he could effectively wrap-up the nomination, and thus ensure that I, my embassy, and my country are on the you-know-what list of a man who is potentially the next U.S. President"?

Even if Obama's aide never gave this warning to the Canadians, he shouldn't get a free ride for all his NAFTA-bashing. The Mexicans and Canadians aren't amused.

Arturo Sarukhan, Mexico’s ambassador to the US, told the Financial Times that the US, Canada and Mexico had all benefited from Nafta and warned against reopening negotiations.

“Mexico does not support reopening Nafta,” he said. “It would be like throwing a monkey wrench into the engine of North American competitiveness.”

Mexican diplomats believe a renegotiation could resurrect the commercial disputes and barriers to trade that the agreement itself was designed to overcome.

Jim Flaherty, Canada’s finance minister, also expressed “concern” about the remarks by the Democratic candidates.

“Nafta is a tremendous benefit to Americans and perhaps the [candidates] have not had the opportunity to familiarise themselves with the benefit to Americans and the American economy of Nafta,” he said.

The Canadian trade minister is also irritated by all the NAFTA-bashing.

Canada's trade minister, David Emerson, also lamented the threats of withdrawal. "The rhetoric of protectionism has been creeping up and getting more strident," Mr. Emerson said in Ottawa, according to Bloomberg News. "It's not just the heat of the presidential campaign."

Mr. Emerson suggested that America might regret choosing to put the entire trade agreement up for new negotiations. "If you reopen Nafta, you re-open it for all three parties," he said. "If Nafta were reopened, we would have our list of priorities."

The trade official even made what some Canadian journalists interpreted as a veiled threat that new Nafta talks could lead to a reduction in Canada's natural gas and oil exports to America. "Knowledgeable observers would have to take note of the fact that we are the largest supplier of energy to the U.S.," Mr. Emerson said, according to the Canadian Press. "It's not such a slam dunk proposition."

A diplomatic source, who asked not to be named, said the statements signaled considerable pique, as foreign governments usually take pains to refrain from any public commentary on American political campaigns.

Yup, they're sure demonstrating how they'd improve our relations with our allies.

And they're also demonstrating what they don't understand about our trade policies. They're ignoring how NAFTA has helped our economy. As Michael Den Tandt, a Canadian columnist and editor points out,

But the real story, from a U.S. electoral point of view, is the one Obama and Clinton deliberately ignore. Free trade has been hugely beneficial to U.S. workers, too. For 36 of 50 U.S. states, Canada is the leading export market. That includes all the powerful border states - Ohio, Michigan and New York. But it also includes some states you might not expect - Georgia, Kansas, Tennessee, South Carolina.

In 2006, according to Canadian government data, Ohio alone exported $18-billion worth of merchandise to Canadian customers. A big chunk of that was in transportation and metal products, related to the auto industry. We bought $3.4-billion worth of their auto parts, and $2.1-billion worth of their cars. And here's another interesting tidbit: In 2006 Ohio imported $4.2-billion worth of Canadian crude oil.

Of course, Ohio isn't the only state that needs Canadian energy, as Industry Minister David Emerson pointed out Wednesday. At last count, Canada provided about 18 per cent of the United States' foreign oil supply - more than any other source including Saudi Arabia, which provides about 15 per cent. Canada accounts for almost all of the United States' natural gas imports, which are critical to, among other things, keeping the lights on in California. And don't get me started on Canadian lumber, the availability of which knocks an estimated $2,000-$3,000 off the price of every new home built in the United States.

Michael Goldfarb reminds us how renegotiating NAFTA wouldn't help Ohioans.

But what if you did repeal NAFTA? What if you took away the low tariff rates that give an incentive for American firms to locate their production in lower-cost Mexico? Why would you imagine that those companies would relocate production in the U.S.? It's entirely possible that they would relocate to a lower-cost manufacturing country --- such as Malaysia, Thailand, or China.

Not only would this not help create jobs in the United States, it would reduce them (at least in the short term). That's because our imports from Mexico have a much higher content of material originally produced in the U.S. (our exports to Mexico) than do our imports from China. So if we replace imports from Mexico with imports from another country, it harms our export base.

Lastly, the nation's largest trade deficits are with countries that we have no trade agreements with. The proper public policy for addressing such deficits then, isn't to get out of the ones that we have, it's to negotiate more.

It's funny. I've begun covering the Great Depression in my American history classes. As we were talking about the Smoot-Hawley Tariff and how it helped to exacerbate the economy's downturn, one of my students asked how the politicians of 1930 could have made such a terrible policy mistake. We talked about how politicians feel a need to do something when people are suffering even if all the economic wisdom of the day argued against raising the tariff. As Kimberley Strassel writes today, the Democrats under FDR turned away from protectionism and that it is a real shame to see them adopting such an opposite position today.

UPDATE: The denials and counter-denials are flying on the story of an Obama aide giving the wink and nod that Obama doesn't really mean his NAFTA-bashing. The Obama campaign and Canadian embassy are assertively denying such a discussion.

Obama campaign spokesman Bill Burton said that "the news reports on Obama's position on NAFTA are inaccurate and in no way represent Sen. Obama's consistent position on trade.

When Sen. Obama says he will forcefully act to make NAFTA a better deal for American workers, he means it." Burton added that "both Canada and Mexico should know" that Obama would demand amendments to NAFTA to include labor and environmental standards not currently in the treaty.

The Canadian Embassy issued a statement Thursday stating that "at no time has any member of a Presidential campaign called the Canadian Ambassador or any official at the Embassy to discuss NAFTA" and stated the CTV story is "untrue. Neither before nor since the Ohio debate has any presidential campaign called Ambassador Wilson or the Embassy to raise NAFTA."

But CTV is seeing their denial and raising it by giving out the names of the people involved. (h/t to Hot Air)

However, the Obama camp did not respond to repeated questions from CTV on reports that a conversation on this matter was held between Obama's senior economic adviser -- Austan Goolsbee -- and the Canadian Consulate General in Chicago.

....But on Wednesday, one of the primary sources of the story, a high-ranking member of the Canadian embassy, gave CTV more details of the call. He even provided a timeline. He has since suggested it was perhaps a miscommunication.

The denial from the embassy was followed by a denial from Senator Obama.

"The Canadian government put out a statement saying that this was just not true, so I don't know who the sources were," said Obama.

Sources at the highest levels of the Canadian government -- who first told CTV that a call was made from the Obama camp -- have reconfirmed their position. (Emphasis added)

And ABC is getting the runaround in their attempts to pin down the story.

ABC News' Jennifer Parker spoke to Goolsbee, a University of Chicago economics professor, Thursday who would not confirm or deny that he had a conversation with Georges Rioux, the Canadian Consulate General in Chicago. Rioux, in meetings this week in Ottawa, would also neither confirm nor deny any conversation took place. Both men did say that they know each other.

As Hot Air notes, Austan Goolsbee is the senior economic advisor for the Obama camp.

The Obama campaign could simply say that no matter what Goolsbee said to someone in the Canadian Consulate in Chicago, that Senator Obama means what he says about NAFTA and that Goolsbee just was expressing his own personal opinion not that of the Senator. The story would then go away. But as long as the charges between the Obama campaign and the Canadian media are going back and forth and John McCain is making an issue about NAFTA and Obama's purported hypocrisy as not being "straight talk," this story will stay in the news.