Needless to say, I am quite disappointed that the main point on which Obama and Clinton seem to be competing is who can threaten the most drastic action on NAFTA. I expect that before we get to the March 4th primaries, we will have heard at least one promise to carpet bomb Mexico City. Pulling out of NAFTA will piss off our allies, severely disrupt several key industries (I'm looking at you, Michigan), and will not reverse the decline in manufacturing jobs. The Economist's blog, however, suggests that it might not be so bad:
The world is globalised, and an election in America does not make one's neighbours disappear, much as one might wish them to. Mr Drezner is correct to note that re-establishing respect for America's allies is a key plank of the Democratic electoral platform. It is awfully hard to square that with efforts to throw those allies' economic concerns out the window.
But perhaps we could avoid this discussion altogether. All the attention paid to a single tri-lateral trade agreement should remind us that trade agreements are a pretty subpar way to liberalise trade in the first place. That's the point made by Richard Baldwin at VoxEU today, who calls the tangle of overlapping and conflicting bi-lateral and regional trade agreements "the spaghetti bowl."
My former employer's opposition to bilateral trade deals was one of the few editorial lines of which I was not quite sure. In an ideal universe, obviously, all trade deals would go through the WTO. But if we cannot achieve a multilateral trade deal--as it seems we currently cannot--it's not clear to me that nothing is better than something.
Update Commenter Noah says:
...what? In an ideal universe, we adopt unilateral free trade, full stop. And if we really need to work out a free-trade agreement with another nation explicitly, the text should fit on a postcard.
Well, yes and no. I agree that unilaterally dropping our trade barriers would be good for America. But America is a big market, and there is a possibility that by using the lure of lower American trade barriers, it could get other countries to lower their trade barriers, thereby producing even more gains from trade than we'd get by just going to unilateral free trade. Of course, it's not clear that this is the case, and given the stalled progress at the WTO, perhaps it would be a good idea to just go full monty rather than waiting for talks to restart. There's also the possibility that America could become a light to all nations--that we could make free trade so obviously awesome that everyone else would follow suit. So I'm not sure whether unilaterally lowering would be a net benefit or not. All of this is politically moot, of course; at this point, we free traders are fighting just to hold onto the gains we've made. But it's interesting to debate the theory.
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