December 20, 2007
NAFTA Posted by Fredric Smoler at 11:25 AM EST John Steele Gordon’s lead piece on this site this past Monday, on the anniversary of NAFTA, gives his assessment of the achievement in its title: “Why NAFTA Was a Very Good Thing.” My impression of the recent economic analysis is that to date NAFTA has been more like a pretty good thing, since increases in Mexican GDP traceable to it have been smaller than expected, but I have no real quarrel with his judgment. His piece did remind me of a Q&A I once did with the vigorously pro–free trade economist Jagdish Bhagwati, for a quarterly once published by American Heritage and Forbes titled Audacity magazine. Bhagwati, the economist other celebrated economists reportedly wanted as the first head of the World Trade Organization, made a simple and interesting point: NAFTA, then in the news, was an FTA—a free trade area—and that FTAs were not the same thing as free trade. FTAs are formed by groups of states agreeing to eliminate tariffs, quotas, and preferences on most, sometimes even all, goods traded within the treaty area. The point of an FTA is that not all states agreeing to play by these rules can join; FTAs discriminate in favor of insiders and against outsiders. Free trade treaties in theory open to all states agreeing to play by the specified rules—treaties like the World Trade Organization—are gains for free trade; FTAs can be the tools of people seeking a return to autarky, or at least protection from some international competition. That does not man that Bhagwati was opposed to NAFTA. If I remember correctly, he gave it something like two cheers, because you have to take what you can get, and hostility to free trade remained formidable even in one of the least protectionist political cultures in the modern word, the United States in the 1990s. One of the oddities of intellectual life is the fact that a few ideas absolutely dominant in a profession—for example, the advantages of free trade in economics—generally seem counterintuitive to most other educated people. In the case of free trade, that does not mean that fights within the profession stop about the details. Bhagwati was a militant (and prescient) critic of unregulated financial flows in and out of currencies, and was less than aggressive about U.S. demands for greater protection of intellectual property. But he was a strong enough free trader to be depicted as a rightist on the academic left. Who really believes in free trade, other than mainstream economists? Do the Chinese, Japanese, and French political elites believe in it with any passionate conviction? Much evidence suggests that they do not. Does the U.S. Congress? The evidence on that one is less than persuasive.
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