With little progress in the fifth round of NAFTA talks that ended Tuesday, it’s increasingly likely this crucial trade agreement will collapse and spark a major recession.
The U.S. Chamber of Commerce estimates that the 23-year-old North American Free Trade Agreement supports 14 million American jobs. Many of those are in California, and San Diego would be hit hard by an end to the agreement.
President Tump called NAFTA the “worst trade deal in the history of the world” during the campaign, and almost unilaterally canceled it earlier this year. It’s likely he’ll get his wish.
At the heart of the problem is old ideas about trade held by, well, old men in power. U.S. Trade Representative Robert Lighthizer is 70, Trump is 71, and Commerce Secretary Wilbur Ross is 79.
When they came of age a half century ago, the world was simpler. International trade meant products carried by tramp steamers and unloaded by teams of stevedores. They see trade as producing winners and losers, with the value of products sold and bought the only measure. And they think America has been the loser.
But the world is very different than it was in the 1950s. It’s more sophisticated, and more integrated. And America isn’t the only country with an advanced, post-industrial economy.
In today’s world, medical technology firms design products in San Diego, assemble them at maqiladoras in Tijuana, and export the finished products worldwide.
Qualcomm creates chips on computers in San Diego and transmits them electronically to fabrication plants in South Korea to be assembled into smartphones in China to be imported back into the United States to run on software developed in Silicon Valley.
Amazon hosts Mexican and Canadian e-commerce sites on its servers in giant data centers in the Pacific Northwest.
And those tramp steamers of the 1950s? Replaced by jet freighters and giant container ships whose schedules are determined by computers to support just-in-time manufacturing supply chains.
U.S. business and farm groups have been unanimous in their pleas to protect NAFTA. The Department of Agriculture is preparing to ask for farm aid if NAFTA collapses. By one estimate, 50,000 auto manufacturing jobs would be lost. But the old men in charge keep playing hardball.
Ross seems to think the United States holds all the cards. He told the Wall Street Journal last week that an end to NAFTA “would be devastating to the Mexican economy” and “a big-time problem for Canada.”
He seems to view those countries as they were in the 1950s, when their economies were much smaller and less sophisticated. In fact, both of those countries are turning their focus to Asia, especially since Trump pulled America out of the Trans Pacific Partnership. America’s a big market, but China is almost as large and growing faster.
Mexico is ready. You can already fly direct to Shanghai from Tijuana. If NAFTA collapses, the maqiladoras will start making Chinese designs.
Trade in the 21st century requires modern ideas, not old maxims held by old men.
Chris Jennewein is editor and publisher of Times of San Diego.
