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Trumpeting Trade

With protectionism sweeping the nation, let’s recall why NAFTA has been so good for Texas.

By October 2016Comments

Illustration by Thomas Fuchs

On June 17, a few minutes after taking the stage at a campaign rally in The Woodlands, Donald Trump, the Republican nominee for president, noticed a sign in the crowd and, as he’s wont to do, became distracted. “Oh, I love that—look at that! ‘Mexicans for Trump.’ Mexicans for Trump! I love it! I love it! I love that!
“You know why it’s ‘Mexicans for Trump?’ ” he mused. “Because I’m gonna bring jobs back into our country. And Hillary doesn’t have a clue. She doesn’t know about jobs. Remember this, remember this: her husband signed NAFTA.” The crowd booed. Trump paused, nodding sympathetically, then elaborated on his objections to the North American Free Trade Agreement, the landmark international treaty negotiated by George H. W. Bush and ratified in 1993 under Bill Clinton that, in Trump’s telling, has proved to be “maybe the worst economic development transaction ever signed in the history of our country.”

Trump has made a version of this argument many times during his campaign. If anything, his antipathy to NAFTA has seemingly grown stronger over time. As he noted to the appreciative audience in The Woodlands, he had been “all over the different states” during the primary and had witnessed “the havoc that it’s wreaked.” His umbrage at the treaty seemed almost personal: “It’s taken our jobs just like we’re a bunch of babies—like we’re a bunch of babies—and moved ’em to other places. Honestly? Moved ’em all over Mexico.”

The mini-monologue sounded awfully strange coming from a man who’s hawked Trump-branded suits made in the Mexican maquiladoras he so strongly objects to. And, as is often the case with Trump, his argument was, at best, misleading. It’s true that NAFTA, and the broader trend toward globalization, has its downsides. The concerns that many critics have voiced about the treaty’s impact on American workers, American industry, and the environment are worth taking seriously. Parts of the country have struggled economically, a fact that would be foolish to ignore, even if it’s reductive to say that NAFTA is the sole cause of the decline in the Rust Belt. But more than twenty years after the treaty’s implementation, there is a broad consensus among economists that the good far outweighs the bad, that by facilitating vast growth in trade between the United States, Mexico, and Canada, NAFTA has improved the overall prosperity of all three countries. The number of manufacturing jobs in the United States has declined over the past twenty years, but outsourcing is not the only reason, and the sector is not defunct. In Indiana, the state where Trump effectively clinched his party’s nomination with a resounding victory in May, manufacturing still accounts for 30 percent of the gross domestic product and 17 percent of all jobs.

On balance, then, Trump’s sweeping indictment of globalization seems alarmist. And his determination to rail against trade at a rally in Texas was, under the circumstances, rather uncouth. For one, he was speaking in the state that has benefitted the most from NAFTA and would suffer the most from its repeal, a point some of his own supporters had impressed upon him earlier that same day. At a private fundraiser in San Antonio, Dennis Nixon, the CEO of the Laredo-based International Bank of Commerce (IBC), had told the candidate and a roomful of supporters, “Mr. Trump, we must support trade,” according to the Texas Tribune.

At the time, behind the closed doors of the fundraiser, Trump indicated that he was listening to Nixon, even if he didn’t necessarily agree. But there he was, just hours later in The Woodlands, at the first available opportunity, scoffing at the pro-trade perspective in public. He returned to his critique of trade several times throughout his remarks. At one point he noted that some conservatives had implored him to take a more nuanced view of free trade and bragged that he had resisted their entreaties: “Who cares?”

Well, anyone who values the health of the Texas economy should care about the effects of Trump’s rhetoric. He’s been roaming the nation for more than a year, and there are signs that his view on trade is resonating. In a poll taken a few weeks after Trump’s appearance, the University of Texas found that 51 percent of Texas Republicans—that’s right, Texas Republicans!—think that international trade deals have done the nation more harm than good. But it’s a bipartisan issue, as the ongoing debate over the Trans-Pacific Partnership proves. That treaty would lower barriers to trade between the United States and eleven other countries. The agreement was signed in February 2016, after years of negotiations, and the Obama administration was initially hoping that Congress would ratify it this summer. But the TPP faces serious opposition in both chambers of Congress, from Democrats and Republicans alike, and will keep the trade debate going long after the election is over.

More generally, the backlash against trade is of a piece with the populist fever that has swept most industrialized democracies over the past several years. Protectionism has been a common theme for 2016’s populists, whether they’re advocating for the United Kingdom to leave the European Union or the United States to defect from NAFTA. In the United States, this inchoate energy helped fuel not just Trump but also the unexpectedly ferocious challenge Bernie Sanders mounted against Clinton in the Democratic primary. That bipartisanship shows how seductive the anti-trade arguments can be, with their simultaneous appeals to nationalistic sentiment and progressive values.

More than any other state, however, Texas is proof of the enormous benefits of free trade in general and NAFTA specifically, and it’s a lesson that critics would do well to heed. Given the size and complexity of Texas’s economy, it’s inevitably hard to pinpoint a single cause of any change since NAFTA was implemented, in 1994. But the very size and complexity of our economy also demonstrates how profoundly the agreement has shaped our state. Last year, Texas’s GDP was about $1.6 trillion, meaning that our economy is slightly larger than Canada’s; in 1993 it was $444 billion. Since 2001, we have led the nation in exports, selling about $250 billion worth of goods abroad each year. If you doubt that NAFTA has spurred the growth of Texas’s exports, consider this: Mexico is our largest trading partner, and Canada is second; exports to those countries have increased by more than 400 percent since NAFTA. In recent years, our state’s employment growth has been famously better than the national trend, and that’s partly because of trade. Sectors relating to international trade support roughly three million jobs in the state, according to a 2015 study by the conservative Business Roundtable group.

Given all that, there’s a clear consensus among Texas’s leaders that trade is critical to our economic future. Many of our Republican elected officials have nonetheless expressed support for Trump, but they’ve studiously avoided discussing his views on trade. None of Texas’s statewide leaders have seconded his calls to scrap NAFTA, but few have confronted Trump on the subject like Nixon, the banker from Laredo, and that’s not a coincidence. After all, few cities have gained as much from NAFTA as his.

The city spent much of the twentieth century in the kind of poverty that most Americans would expect to find in a developing nation. Like most Texas border cities, it is not wealthy, but since NAFTA, it has become the largest inland port in the country, with some 12,000 commercial trucks and 550 trains passing through each day, for a total trade volume of some $280 billion a year.

On a recent visit to Laredo, I met with Gerry Schwebel, the executive vice president of IBC. He is of Mexican descent on his mother’s side, and his father was an Austrian Jew whose family fled to Mexico on the eve of World War II. In 1986, shortly after joining IBC, Schwebel became a founding member of the Border Trade Alliance, a group of business leaders in both the United States and Mexico who want to boost the border’s profile in the nation’s emerging debate about globalization.

IBC was then a small bank. It specialized in cross-border commerce, but, at that time, it was mostly retail and wholesale; the maquiladora industry as we know it today had been established but had yet to flourish. When the idea of a free-trade agreement started to gain traction in Washington, proponents enlisted Schwebel to advocate for NAFTA. “I testified so many times I didn’t even know who was on what panel,” he said. At one point, he added, he arrived to give congressional testimony on the deal’s projected effects on transportation, only to discover, upon opening his folder, that he had accidentally brought his speech on how it would affect the environment.

Then as now, opponents of the idea were quick to offer dire warnings about how such a deal would hurt American small businesses. Schwebel, as a banker for such small businesses, could credibly argue that those predictions were not necessarily accurate. And in meetings with congressmen, Schwebel explained, that was essentially what he and other advocates did. For a banker in Laredo, or a member of the San Diego Chamber of Commerce, for instance, it was easy to see that some degree of economic integration already existed between the United States and Mexico and to understand that facilitating more cross-border commerce could help both countries. But to politicians from other parts of the country, the benefits to their states and districts weren’t necessarily obvious. Schwebel and other NAFTA supporters didn’t win over everyone, but they did secure the congressional majorities they needed to approve the treaty.

Two decades later, Schwebel remains a NAFTA proponent. A cynic might note that its passage has fueled the growth of his own bank, which now manages $11.8 billion in assets. But in fairness, the data clearly show, many other Texas businesses have experienced substantial growth too. Schwebel has been asked, he said, what he might say to people in regions of the country that have had less-happy experiences with globalization. He points out that prior to the passage of NAFTA, Laredo was a poor and left-behind city. Double-digit unemployment was routine. For him, then, the answer is easy: “I don’t want it to be the way it was before.

“You cannot have a perfect trade agreement,” he said. “To me, it’s a framework for how we can work together and have access to each other’s markets.” Since 1994 Texans have taken advantage of the opportunity to do so. NAFTA has its problems, but scrapping it would be lunacy.

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  • gordo

    Before the usual suspects start in sniping at Erica and each other, I think it important that we make a distinction between NAFTA and the maquiladora program she referenced. The maquila program predates NAFTA by 30 years, and is a Mexican, not US program. It allows foreign (US mostly, but Asian and European companies take advantage of it) companies to import to Mexico components and materials for assembly and export duty free. It is the maquila program that Ford, GM and other automotive companies use to assemble engines, bodies and sometimes full cars in Hermosillo, Juarez, and other places. VW, a European company does the same thing further south. A large number of electronics companies are now doing the same thing with televisions, smartphones, and other appliances. Thousands of manufacturing jobs in the Midwest and other places are dependent on lower skilled labor in Mexico to keep costs competitive. So please, folks, don’t conflate the maquiladora program with the NAFTA treaty. They are different things.

  • oblate spheroid

    I swear, if this doubles the price of my guacamole thanks to stupid high tariffs on delicious limes, cilantro, and Avocados de Mexico, there will be hell to pay.

  • vippy

    The TPP will seriously damage our economy!