By Alan Dowd – ASCF Senior Fellow
March 2014 – This year marks the 20th anniversary of the North American Free Trade Agreement (NAFTA) coming into force. It was Ronald Reagan, ever the visionary, who sketched the outlines of NAFTA in 1979. The idea of a free-trade zone stretching from the Aleutian Islands to the Yucatan Peninsula was so important to Reagan that he made it a central feature of the speech announcing his presidential candidacy. Noting how “We live on a continent whose three countries possess the assets to make it the strongest, most prosperous and self-sufficient area on earth,” Reagan proposed what he called “a North American accord” to allow the “peoples and commerce” of the United States, Mexico and Canada to “flow more freely across their present borders.” Reagan believed such an accord “would serve notice on friend and foe alike that we were prepared for a long haul, looking outward again and confident of our future”—and that a U.S.-Mexico-Canada alliance of free trade and free enterprise would unleash an economic potential beyond which “any of them—strong as they are—could accomplish in the absence of such cooperation.”
Regrettably, the current occupant of the White House simply doesn’t share Reagan’s view. After all, for more than five years, President Barack Obama has blocked extension of the Keystone XL pipeline, which would carry oil from Canada through the U.S. and ultimately to the Gulf of Mexico. This made-for-NAFTA/made-by-NAFTA project would solidify dependable markets for Canada’s oil-sands fields, ensure dependable supplies for American consumers, strengthen distribution channels in the U.S. and bring North America one step closer to becoming what Ed Morse of Citi calls “the new Middle East.”
Before scoffing at this, consider that tens of billions of barrels of crude have been discovered in the U.S. and Canadian Arctic, in North Dakota and Montana, and in the Gulf of Mexico; that oil-shale deposits in Colorado, Utah and Wyoming “contain up to 3 trillion barrels of oil, half of which may be recoverable,” according to GAO studies; that Utah holds between 12 billion and 19 billion barrels in the form of oil-sands deposits; that Alberta holds 170.2 billion barrels of oil, most of it in the form of oil-sands; that Mexico holds some 87 billion barrels of crude; or that Mexico’s recent decision to open up its state-dominated energy sector to private investment is expected to double annual oil outputs.
In short, what Reagan predicted decades ago—that “the key to our own future security may lie in both Mexico and Canada becoming much stronger countries than they are today” and that trade flows between the U.S. and Canada would “improve national security through energy sharing”—is coming to fruition. There can be no doubt that North America’s transformation into an energy juggernaut will dramatically enhance the economic, strategic and geopolitical position of the United States.
An Enormous Problem
We are at the threshold of “a North American hydrocarbon revolution,” according to Morse. “The only thing that can stop this is politics.” And that’s exactly what’s happening, as the Obama administration allows Keystone XL to languish. Given that Canada is going to pump its oil one way or another—sending it either south to the U.S. or west to China—and that pipelines pose far fewer risks to the environment than other modes of oil transport, the administration’s implication that Keystone XL would somehow hurt the environment is all about interest-group politics.
Simply put, it seems the administration cares more about keeping the environmental lobby happy than keeping America’s NAFTA commitments. This should come as no surprise. The Obama administration has never viewed trade as a priority, and Obama himself doesn’t seem to believe in the benefits of free trade.
For example, trade-expansion agreements with Korea, Panama and Colombia—all hammered out by President George W. Bush before he left office—hung in limbo for 33 months before Obama finally limped them across the finish line in late 2011.
Moreover, it pays to recall that Obama criticized free trade in general and NAFTA in specific during his White House bid. “We can’t keep passing unfair trade deals like NAFTA that put special interests over workers’ interests,” the would-be president said in 2008, calling NAFTA “an enormous problem.”
Here are the facts about the “enormous problem” otherwise known as NAFTA:
• NAFTA comprises a market of 444.1 million people, an economy of $19.4 trillion and total trade flows of some $1.2 trillion (up 250 percent since 1993, the year prior to NAFTA).
• The Office of the U.S. Trade Representative reports that U.S. goods exports to NAFTA are up 190 percent from 1993; U.S. goods imports from NAFTA are up 235 percent from 1993; and U.S. goods exports to NAFTA account for 32 percent of overall U.S. exports.
• Since NAFTA came into force, the NAFTA-zone economy has more than doubled; merchandise trade among the NAFTA trio has tripled; and 40 million new jobs have been created.
• In the 15 years immediately after NAFTA came into force, U.S. manufacturing output increased by 62 percent (or 4.1 percent annually), compared with 42 percent (or 3.2 percent annually) in the 13 years before it came into force.
• U.S.-Mexico trade increased by 506 percent between 1993 and 2012, and U.S.-Canada trade by 186 percent.
• Trade with Canada and Mexico supports nearly 14 million U.S. jobs, according to the U.S. Chamber.
Just as Reagan predicted, NAFTA has unleashed a stronger, more prosperous, more self-sufficient North America.
No matter. The Obama White House won’t be confused by the facts. Keystone XL—and the North American oil revolution it represents—don’t fit the president’s vision for a “clean-energy economy,” so he flouts the letter and spirit of NAFTA and has basically stopped tending to the NAFTA partnership. Even the New York Times has noticed, pointing out how the joint communique from Obama’s recent summit with his Canadian and Mexican counterparts “seemed a statement of status quo. It used the phrase ‘continue to’ eight times.”
Canada could retaliate against Obama’s groundless, endless delays to Keystone XL. And it could really hurt: As the State Department reports, “Canada is the number one export market for 38 U.S. states.” The U.S. Chamber adds that some 8 million U.S. jobs depend on trade with Canada—931,890 in California, 624,986 in Texas, 465,072 in Florida, 339,905 in Illinois, 162,045 in Missouri. The list goes on and on.
However, Canada won’t retaliate. The wiser, cooler heads in Ottawa know that free trade is the engine of their economy and our economy and our shared economy, that oil is the fuel of that economy, and that it makes more sense to build bridges (and pipelines) than obstacle courses.