Thinking Strategically About NAFTA

Earlier this year, the leaders of Mexico, Canada, and the United States each agreed to renegotiate the terms of the North American Free Trade Agreement (NAFTA), originally adopted in 1994. While the effectiveness and fairness of this treaty can be debated, there is no question that it has endured for over two decades and today provides a useful framework to modernize and expand its initial objectives. This new round of negotiations provides the three neighboring states with an important opportunity to consider fully the role of North America in the geopolitical context of the 21st century.

Before considering the terms of a revised NAFTA, one should consider the thought-provoking insights of international relations scholar Parag Khanna. Khanna notes how outdated political boundaries serve as a constraint on the American economy because they prevent the integration of social, economic, and industrial components across state lines. He concludes that by redefining the American political map, that is, rethinking our current state borders, the economy will be better positioned for the future. This change of perspective, more so than a grand military strategy, will enable the US to remain a superpower. Renegotiating NAFTA must be viewed through this strategic lens.

Boundaries and names of 7 mega-region, sources: Forbes Magazin; Regional Plan Association; Census Bureau; nited State High Speed Rail Association; Clare Trainor/University of Wisconsin-Madison Cartography Laboratory | Joel Kotki |

Boundaries and names of 7 mega-region, sources: Forbes Magazin; Regional Plan Association; Census Bureau; nited State High Speed Rail Association; Clare Trainor/University of Wisconsin-Madison Cartography Laboratory | Joel Kotki |

The original NAFTA agreement focused on expanding trade, cross-border investments, and forming economic partnerships among the three nations and largely these goals were met. As one study assessed, “Economists largely agree that NAFTA has provided benefits to the North American economies. Regional trade increased sharply over the treaty’s first two decades, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Cross-border investment has also surged, with U.S. foreign direct investment stock in Mexico increasing in that period from $15 billion to more than $100 billion.”

NAFTA laid the foundation for Free Trade Agreements with other nations and the scope of subsequent agreements expanded beyond trade, to include intellectual property, labor laws, and environmental issues. Similarly, the scope of the renegotiated NAFTA must be expanded to strengthen cooperation in other areas. The new terms of the treaty are critically important to the American economy and to its greater strategic interests, as it will have to contend with the rise of China if it wishes to remain a global power in the future.

China is clearly asserting its influence in the Asia-Pacific region with its controversial reef reclamation efforts but it also seeks to expand its strategic influence westward through its One Belt, One Road (OBOR) project. According to a recent McKinsey report, China committed to spend $40 billion on OBOR with an objective to, “see the development of six major economic corridors, including the New Eurasian Land Bridge, China–Mongolia–Russia, China–Central Asia–Western Asia, Indo-China Peninsula, China–Pakistan, and Bangladesh–China–India–Myanmar. These corridors will be the sites of energy and industrial clusters and will be created through the use of rail, roads, waterways, air, pipelines, and information highways.” If this project is successful, it will create the world’s largest economic platform and significantly increase China’s geopolitical influence. If one considers the international system to be a zero-sum game, this expansion of influence will likely come at the expense of the United States.

China's One Belt, One Road | The Economist

China's One Belt, One Road | The Economist

The United States must not take its relationships with neighboring states for granted. Regarding China’s “great leap” into Latin America, José Cárdenas recently observed, “China also has significant geopolitical interests. It wants to project power and influence in an area long considered to be within the US sphere of influence––no doubt a response to what Beijing considers US efforts to contain and encircle China in Asia by cultivating allied and friendly governments.” Therefore our political leaders must think beyond the usual four-year election cycles and strengthen long-term alliances within the western hemisphere before America becomes isolated in the geopolitical economy.

As China continues to use its growing economy to initiate programs such as OBOR, to expand its global influence, a comprehensive and strategic approach to NAFTA can provide an effective balancing effort for the United States to maintain its position in the Western Hemisphere. As American, Mexican, and Canadian policy makers begin the NAFTA negotiating process, they must focus on three critical areas: trade and economic development, infrastructure modernization, and immigration reform.

Graphic by Ryan Morgan-Kleinman

Graphic by Ryan Morgan-Kleinman

While current trade issues such as soft-lumber tariffs and dolphin-safe tuna will need to be addressed, this process should seek ultimately to strengthen and expand the regional trading bloc among the three states. It appears that Mexico views the new NAFTA negotiations in this light, particularly to address shared concerns over China. Mexico’s Economic Minister, Ildefonso Guajardo, recently urged President Trump to reuse agreements reached under the Trans-Pacific Partnership to “create a manufacturing powerhouse between the US, Mexico, and Canada to compete with low-cost producers in China.”

Creating a mutually beneficial partnership amongst all three nations will be difficult to achieve but will result in stronger economic conditions throughout the region. As one Canadian expert noted in 2015, “We estimate that if NAFTA over the next two decades were to regain the momentum it had from 2000 to 2007, it could cement its position as the world’s most competitive region and see up to $40 trillion of annual trade and financial flows by 2035—a five-fold increase from today. That in turn could feed through into more jobs and GDP growth.”

Just as China is using significant investments in infrastructure to connect economic centers in Eurasia, Europe, the Middle East and Africa, the United States similarly must promote spending on infrastructure that underpins regional economic activity. President Trump campaigned on a platform of infrastructure development and part of his agenda must include promoting a vision of a regional transportation network that connects economic centers in Mexico, Canada, and the United States.

It is easy to envision a world-class high-speed rail network starting in Mexico City, that proceeds on pathways through key cities on the American West Coast to Vancouver, through the American Midwest into Toronto, and up the American East Coast to Montreal. Effective policies, shared security responsibilities, and modern information sharing systems are needed to turn this vision into a reality by 2030. Doubtless there will be significant changes in transportation technology during this time as well, therefore policy makers must use this opportunity to consider how unmanned transportation systems will move across national borders without disruption of economic flows in the future.

Building a wall along the US Southern border has been a controversial aim of the Trump Administration. The movement of criminal activity across the border, widely ignored by both political parties for decades, was finally recognized as a significant national security threatin 2011, as the Obama Administration published the first national strategy to counter transnational organized crime.America’s uncontrolled southern border is certainly a critical vulnerability but this situation can only be improved with cooperation from Mexico.

Simply building a wall on its own will not fix America’s complex immigration problem.  There are a host of humanitarian and political issues to consider, but renegotiating NAFTA provides the opportunity to look at worker migration through an economic lens. The realization that the American economy needs the influx of foreign workers and international trade to ensure long-term economic growth serves as the foundation for policy change.

As President Trump seems determined to build some form of physical barrier along the Southern US border, it should only be done in conjunction with the high-speed rail network. If this occurs, humanitarian, economic, and security issues can be addressed simultaneously. Framing this problem in a new, positive light and recognizing each nation as a critical partner and not as an adversary is key to success.  

A portion of the fence along the U.S. border with Mexico in Southern California | BBC World Service

A portion of the fence along the U.S. border with Mexico in Southern California | BBC World Service

This new transportation network and supporting policies could make controlled migration easier and safer and would enable hard-working, well-intentioned people to move easily across and within all three nations. Illegally sneaking across the border to improve one’s quality of life or to allow a family to escape a dangerous environment must become a thing of the past and negotiating a “grand bargain” as part of NAFTA is the first step in solving this problem. Of course, the three parties must recognize and cooperate to enforce each other’s immigration policies for this solution to work. 

An ambitious undertaking such as this requires strong leadership, the ability to cooperate, and a creating a strategic vision; on these points the Chinese have taken the lead. As one European executive commented on the OBOR, “[t]here is a strategy – and the Chinese government has been implementing it. It is absolutely impressive how systematically and efficiently this initiative is being implemented.” Partisan politics has become the achilles heel of US foreign policy. Renegotiating NAFTA provides the opportunity to promote cooperation from both sides of the political aisle and on both sides of the national borders.

In his February 2017 speech before Congress, President Trump issued a “call to action” for the American people and Congress to embrace the renewal of the American spirit and to dream of big, bold, and daring ideas for the country. Examining the strategic ties in the areas of trade, immigration and infrastructure across North America through a completely new lens meets his criteria.  Renegotiating and expanding NAFTAprovides the perfect opportunity to create a strategic vision for Canada, Mexico, and the United States, as they must adopt a regional perspective to address future geopolitical challenges and to ensure the prosperity of each nation.

Robert Kozloski is a federal civil servant. The views expressed in this article are the author’s and do not reflect the position of the Department of the Navy, the Department of Defense, or the U.S. Government.

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