Skip to main content

Is North America Ready for the Ring, or the Gym?

Christopher Sands

Boxer Muhammad Ali, asked about his string of heavyweight championship victories, said, “The fight is won or lost far away from witnesses—behind the lines, in the gym, and out there on the road, long before I dance under those lights.”

Athletic competition and economic competition are similar: success comes with training and preparation.

Edward Alden, a senior fellow at the Council on Foreign Relations, is out with a new study of the Obama administration’s efforts to promote trade and investment liberalization around the world. Alden praises the ambitious U.S. push for free trade, noting that:

“The United States is currently juggling no fewer than five high-level trade negotiations: free trade talks with the European Union; the Trans-Pacific Partnership (TPP) talks with a dozen Asia-Pacific countries; a new Information Technology Agreement covering trade in high-tech goods; negotiations on liberalizing services trade though the World Trade Organization, and a last-ditch effort this week to agree on new trade facilitation measures at the WTO ministerial meeting in Bali.”

For Alden, this marks a remarkable turnaround for a president who in 2008 talked about scrapping NAFTA on the campaign trail.

What about NAFTA? The agreement is now 20 years old. Its origins during the Reagan administration came in part from a U.S. realization that the European Community (as the European Union was known then) was unwilling to agree to more global trade liberalization until it had achieved a single market in Europe — which meant coordinating regulations, lowering the cost of goods and people crossing national borders, opening up domestic economies to trade and investment, and revising intellectual property rules.

All this was necessary so that Europe’s workers and firms could take advantage of specialization and the scale economies of production, and access the capital and advanced manufacturing technology necessary to improve productivity — European leaders knew that without this, Europe could not compete economically with the United States which would flood the continent with its goods, services, and innovations.

Reagan saw the U.S. economy differently, and worried that U.S. competitiveness would suffer unless it, too, was able to find a continental-sized single market in North America. U.S. firms were already present in Canada and Mexico, and sought to rationalize and integrate production from the Yukon to the Yucatan.

Fast forward to the present, and NAFTA has done a great deal to improve North American productivity. Trade among the United States, Canada and Mexico has grown in volume and value and contributed to the economic boom between 1994 and 2001.

And yet, NAFTA has failed in its most important objective: creating a North American single market. Regulatory differences among Canada, Mexico and the United States (and just as often, their states and provinces) make it impossible for many products to be sold in all North American jurisdictions without costly modifications and additional testing and governmental approvals.

The same is true for workers, whose training and credentials are not recognized continent-wide, and who have no right to work outside their domestic market. NAFTA did liberalize investment, but differences over intellectual property protections make it hard for innovative research and breakthrough ideas to be shared within North America.

To top it all off, security measures introduced after September 11, 2001 have raised the costs associated with crossing the border by land, sea or air for people and goods. And after these borders have been crossed, poor infrastructure — roads, rail trackage, bridges, airports, harbors, pipelines, power lines, and even cell networks and internet connections — add to the costs associated with doing business.

In a recent paper of our own, Laura Dawson, Duncan Wood and I set out these problems in detail, and propose policy measures for the leaders of Canada, the United States and Mexico to pick up where NAFTA left off, and work to improve the productivity of the North American economy by lowering the compliance cost of duplicative and even triplicative rules and requirements that are a drag on business and which make it harder for them to create jobs here at home.

Edward Alden’s paper shows why improving North America’s ability to compete around the world matters: if we liberalize global trade and investment rules while leaving the North American economy tied in knots by policy differences over regulation and inspection and without finding a way to improve border security cooperation and invest in infrastructure, firms in the European Union, China, and India will take advantage of our openness to sell goods and services here and produced at home.

And our products and services will be too expensive to sell in the markets of Europe and Asia because of all the costs piled on them by governments.

The Obama administration, the Harper government and the Peña Nieto administration in Mexico all hope to boost economic growth and create jobs by opening up global markets and letting the best North American firms and workers compete.

Before stepping into the ring with the world’s heavyweight economies, North America needs to listen to Muhammad Ali and hit the gym so we are ready to dance again under the bright lights of the global economy.

Related Articles

Obama's Ambitious Free Trade Proposals Are Dead

Irwin M. Stelzer

It is mandatory for economists to point out that one data point does not make a trend. We then all-too-often fill space with, er, a discussion of one ...

Continue Reading

Asia and America Need a Confident Japan

John Lee & Charles Horner

In the first half of the last century, it was growing Japanese power and ambition that brought turmoil to the Western Pacific. The irony in this centu...

Continue Reading

Separate Statement of the Honorable Robert M. McDowell, Member, Panel on Global Internet Cooperation and Governance Mechanisms

Robert M. McDowell

Today, the Panel on Global Internet Cooperation and Governance Mechanisms releases the results of approximately six months of work. Our mission starte...

Continue Reading