Obama's trade pledge may hurt the U.S.

Posted: Monday, July 07, 2008

When I asked Mexican President Felipe Calderon about Democratic presumptive presidential candidate Barack Obama's pledge to renegotiate the U.S. free trade agreement with Mexico, I expected him to say that such a move would be catastrophic for Mexico.

Interestingly, his first reaction was to say that it would be catastrophic for the United States.

Obama's criticism of the 1994 North American Free Trade Agreement among the United States, Mexico and Canada is likely to be raised by Republican presumptive nominee Sen. John McCain during his current visit to Mexico. McCain is courting U.S. Latino voters, claiming that his pro-NAFTA stance makes him a better friend to Latin America than Obama.

In a wide-ranging interview at the presidential palace, Calderon - a conservative by Mexican standards - told me that he sees a dangerous protectionist wave in the United States. Reopening NAFTA, as Obama proposes, would hurt the United States as much as Mexico, he said.

Contrary to Obama's claim that NAFTA has hurt American workers by moving U.S. jobs to Mexico, Calderon said that the free-trade deal has brought about more investment, and better-quality products and lower prices for consumers both in the United States and Mexico. He immediately addressed the possible consequences of a renegotiation of NAFTA for the United States.

"What you have today in the United States is a protectionist wave, a neo-protectionism in public opinion and in the American Congress, whose main result would be a retrenchment from the global economy," Calderon said. "It would be a terrible blow to the region's competitiveness, including the U.S. possibility to better compete in world markets, which is something it badly needs."

How would it specifically affect U.S. competitiveness, I asked.

"Reducing its competitiveness. The United States has been losing ground in its ability to compete with China, India, Eastern Europe, Brazil," Calderon said. He added that "the only way in which the U.S. economy can grow, and be competitive, and sell its products worldwide" is by getting low-cost supplies from Mexico and other Latin American countries, which allow U.S. companies to produce goods that are more competitive in world markets.

Big U.S. companies such as General Motors, which have plants in Mexico from where they export car parts to the United States duty-free under the NAFTA deal, would have to pay import duties for their supplies if the trade agreement were revised. That would not only increase car prices in the United States but make it harder for U.S. automakers to sell their vehicles in Europe and Asia, Mexican officials say.

A new report by the World Economic Forum, titled The Enabling Trade Index 2008, is already showing some signs of alarm about U.S. export competitiveness. The United States is ranked 14th among 118 countries, behind Hong Kong, Sweden, Canada and Germany, among other countries that benefit from preferential trade deals with their respective neighbors.

While the United States has not yet enacted anti-free trade legislation and it continues to be the most competitive country in the world in terms of innovation, there are a number of troubling signs when it comes to U.S. trade competitiveness, according to the study's authors.

In terms of tariff barriers, the United States is ranked 30th in the world, and in terms of nontariff barriers - regulations that put obstacles to imports - it is ranked 32nd out of the 118 countries. And because of post-9/11 anti-terrorism customs procedures, U.S. companies are finding increasing difficulties to import some of their supplies in a low-cost and timely manner, the study says.

"Renegotiating NAFTA would definitely increase the cost of production for U.S. companies, and therefore reduce their profits," says Jennifer Blanke, a senior WEF economist and coauthor of the report. "The United States is benefiting as much, if not more than Mexico from NAFTA."

My opinion: I agree. While I like Obama's positions on many other issues, such as immigration, his anti-NAFTA tirades in Ohio, Pennsylvania and other industrial states that have lost some jobs to Mexico are based on misleading arguments. If Obama wins the presidency and revises NAFTA, these same blue-collar states will lose far more jobs - as will the rest of the country.

• Andres Oppenheimer is a Latin America correspondent for the Miami Herald. he can be reached at aoppenheimer@miamiherald.com.

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