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Nope. Nafta Was No Mistake


International -- Editorials

NOPE. NAFTA WAS NO MISTAKE

The Quebec referendum on leaving Canada has deeply unsettled U.S. proponents of the North American Free Trade Agreement, despite the narrow defeat of the secessionists. The bright dream of an open, continental economic community, composed of the United States, Mexico, and Canada, that would generate trade, growth, and jobs now threatens to fade into a failed promise.

Last year, south of the border, Mexico's leading politicians quietly inflated the money supply to get themselves elected, causing a peso meltdown and economic freefall that required a huge financial bailout from the U.S. Treasury. Now, political instability has erupted north of the U.S. border, scaring the markets. Canada's difficult task of reducing its crippling debt will get that much harder, especially after the departing speech by Quebec's Premier Jacques Parizeau, who spewed the most venomous kind of nationalistic hatred.

So behind closed doors, all around America this week, people are asking: Is it really in the interests of the U.S. to remain in NAFTA? Will it ever see the benefits? Was the initial concept flawed from the very beginning? Were Americans naive?

Yes. NAFTA was crafted as an economic and financial device to open markets and bring free trade. On these grounds, it succeeded. What was neglected in the hard-sell of NAFTA in Congress was the truism that all economies are political economies. The political dimension, so obvious domestically in the fierce battle over NAFTA, somehow was forgotten when it came to analyzing prospects for Mexico and Canada. America is now chastised and, one hopes, more sophisticated.

But this should not diminish America's dream of a single North American economic market. While expectations for quick returns may have been inflated, the right course is to stay the course with NAFTA. Mexico, after disciplining itself severely for its recent monetary sins, with a recession and soaring unemployment, is digging out and will begin to grow again by the end of the year. That means U.S. exports and investments will once more be pouring south soon. Canada, with gross domestic product now growing at about 2.2%, will continue its decades-long negotiation on Quebec's role, if any, in the federation. This may influence trade and investment patterns between the U.S. and parts of Canada, but not overall levels.

So was NAFTA a mistake? No. It's just that its benefits will be delayed a year or two. And the path toward an open North American economy may be a bit rockier.


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