Viva NAFTA, Si CAFTA!

I enjoy the internecine rifts around here, but was sad all day when I heard one of my blog brother's waxing prosaic on NAFTA.

I consider NAFTA a shining light in the late 20th Century, reason to believe that politics is still worth fighting for/about, and -- though pushed by a GOP House -- a great credit to the Clinton Presidency.

No, no free trade agreement will be perfect; actually the absence of legislation would make the whole world rich. But I take every crack in the dams and dikes that allows more trade through as a victory for wealth creation.

Mirabile non dictu, my pals at the WSJ Ed Page agree. Their lead editorial today calls for CAFTA's passage, based on the successes of NAFTA.

We are also told that Cafta can't work because the North American Free Trade Agreement of 1994 didn't work. And while it's true that Nafta didn't cure cancer or turn Mexico into Switzerland, those who argue that Nafta failed are ignoring the evidence.

In Nafta's first decade, annual two-way trade between the U.S. and Mexico almost tripled, to $232 billion from $81 billion. During that same period the U.S. created 18 million net new jobs and, even after the dot-com implosion and the recession of 2001, the current U.S. jobless rate of 5% is lower than it was (6.4%) when Nafta became law. U.S. productivity and wages have all climbed steadily. Ross Perot's prediction of a "giant sucking sound" proved to be a fantasy.
[...]
Nor have Nafta's benefits been limited to dollars and cents. When a rebel uprising, two political assassinations and a financial crisis hit Mexico in 1994, Nafta arguably helped to prevent the kind of political lurch to the authoritarian left that has been common in Mexican history. Nafta created economic and political interests in Mexico that had a stake in relations with the U.S. and global integration.

The economic competition induced by Nafta pushed Mexico's political system forward toward fuller democracy, helping to end 70 years of one-party rule. Compare this progress with isolated Argentina's reaction to its 2001 financial crisis, which has revived the authoritarian Peronism of the 1970s in Buenos Aires. Given Central America's own history of authoritarianism, this is no small point for Cafta. Venezuela's Hugo Chavez will be overjoyed if it fails.

When we started seeing economical, reasonable quality Fender guitars coming from Mexico, my buddy, Sugarchuck, called them "NATFA Strats." That made me laugh at the time, but it remains a pretty decent macro: we get cheaper guitars, they get jobs, and American luthiers can concentrate on more expensive guitars. Yeah baby!

UPDATE: Larry Kudlow says: "According to Investor's Business Daily's Brian Mitchell, CAFTA has become the White House's top legislative priority, with the fervent backing of Ways and Means chairman Bill Thomas. CAFTA passed narrowly in the Senate, and there appears to be uncertainty about it's future in the House. Let's hope Thomas can round up the necessary support."

Economics and Markets Posted by John Kranz at July 27, 2005 11:34 AM