The Peace Arch is a granite monument in the middle of a park straddling the United States and Canadian border at Blaine, Washington and Surrey, British Columbia. The inscription on the American side reads “Children of a Common Mother” and on the Canadian, “Brethren Dwelling Together in Unity.” The Stars and Stripes and Maple Leaf flags fly atop the elegant structure and overlook a scenic, 22-acre park that attracts 500,000 people annually. Visitors do not require a passport or visa to enter so long as they stay within the boundaries of the park and exit back through their country’s entrance.
About 1,400 miles to the south is El Bordo, a dry concrete riverbed with fences and barbed wire on both sides that once held the flowing waters of Tijuana’s main river. The swath divides San Diego suburbs from Tijuana and is a mile-wide militarized zone patrolled by border guards and helicopters to keep out illegal workers and contraband. On the Mexican side is a gigantic refugee camp populated by tens of thousands of deported and homeless Mexicans and Latin Americans removed or kept out of America as a result of its most recent migration crackdown.
This is the North American neighborhood: A monolith in the middle with a friendly neighbor to the north and a troublesome one to the south. The existence of such dissonant borders is itself a metaphor for the reasons why the North American Free Trade Agreement (NAFTA) is being, and should be, reconstituted or replaced.
To Canadians, NAFTA was imposed on them by the United States, concerned about Mexico, after they had signed a two-way trade agreement. But to ordinary Americans, NAFTA brings to mind not Canada but rather Mexico and its gigantic political, social, economic, and legal problems. To corporations, NAFTA is an opportunity to tap Mexico’s inexpensive wages, which are the lowest among the 38 members of the Organization for Economic Cooperation and Development. Wages have not risen since NAFTA’s implementation in January 1994, as hoped, and the exodus of jobs from Canada and the United States to Mexico has gradually hollowed out their industrial regions. This is why the three are now back at the bargaining table to hammer out a new trade arrangement.
Frankly, NAFTA was ill-advised in the first place. President Donald Trump’s NAFTA-bashing (“build that wall”) merely channels what Presidential candidate Ross Perot warned about in 1992: “It’s pretty simple: If you’re paying $12, $13, $14 an hour for factory workers and you can move your factory south of the border, pay a dollar an hour for labor . . . there will be a giant sucking sound going south . . . when [Mexico’s] jobs come up from a dollar an hour to six dollars an hour, and ours go down to six dollars an hour, and then it’s leveled again. But in the meantime, you’ve wrecked the country with these kinds of deals.”
From a Canadian viewpoint, NAFTA interrupted the Canada-United States Free Trade Agreement (signed in 1988) and added a level of unwanted complexity. In 1990, following the catastrophic Latin American debt crisis, Mexico’s President appealed to President George H.W. Bush for a trade deal like Canada’s. Washington decided that a near-bankrupt, struggling Mexico was a political and social threat to the United States, and that, without help, the thousands then migrating illegally could turn into millions. Thus, talks began.
Canada became concerned that its deal would be undermined by a bilateral deal with Mexico and asked to become a party. The three-way negotiations dragged on for two years, and by 1992 a deal was cobbled together with “side deals” attached months later involving environmental and labor protections. But no sooner had the ink dried than the first challenges surfaced. The day that NAFTA was launched, indigenous rebels captured and occupied four towns in Chiapas along Mexico’s southernmost border in protest. Months later, Mexico’s leading presidential candidate was assassinated, and by fall the country had to be bailed out by the United States, Canada, and others because its foreign reserves had been spent to artificially prop up the peso for months as a result of all the mayhem.
Predictably, nearly 24 years later, NAFTA has differing impacts on each of the three parties. The Canada-US agreement in 1989 has proven to be a win-win for the two nations. Trade has roughly tripled between the two since then, and deficits have been minimal in proportion to the size of the commerce. By 2016, the United States racked up a surplus of $12.5 billion with Canada—the only major trading partnership where this has occurred.
Mexico’s involvement with the other two has not been win-win. Since 1994, American exports to Mexico have quadrupled from a very small base, but imports from Mexico have jumped five-fold. The result is that by 2016, America’s trade deficit with Mexico was $55.6 billion, just behind Japan and Germany’s and showing no sign of ebbing. Similarly, the Canada-Mexico trade relationship is one-sided. In 2016, Canada’s trade deficit with Mexico was $19.3 billion. That’s a combined total of $74.9 in deficits for the United States and Canada versus Mexico.
As Perot prophesied, and Trump exploited, NAFTA’s Mexico involvement has contributed toward the hollowing out of what’s known as “Auto Alley”—the industrialized region in both Canada and the United States surrounding the Great Lakes down the Mississippi River to the right-to-work states. Such negative outcomes are why NAFTA should be replaced. But for many reasons, Mexico cannot be orphaned. Perhaps the best solution would be to launch a separate set of bilateral negotiations: a US-Mexico agreement and another Canada-Mexico one.
Ideally, the United States and Canada should revert to their free trade agreement and graduate into a customs union, where workers and goods can move freely across the border, based on the fact that wages, cultures, and institutions are similar. This strategy would result in a perimeter—a low-friction border between the two. In fact this is a process that has already begun through a collaborative program called “Beyond Borders.” Today, United States and Canadian customs, military, naval, taxation, law enforcement, and immigration officials share information and work together. For instance, a pilot project called “cleared once, accepted twice” has been underway in which cargo, and eventually people, arrive in one city in either country and can travel freely throughout the two nations. This is the beginning of a perimeter.
Mexico cannot be inside such a perimeter. Mexico’s institutions remain as corrupt and weak as they were in 1994. Courts, the church, police, the military, the press, and politicians have been unable to stanch the flow of drugs through the country. The United States has also given tens of billions of dollars in interdiction funds to do so. But the country is fighting a “war” with vicious cartels, and in 11 years, the militarized crackdown has resulted in 200,000 deaths and 30,000 missing persons.
Within NAFTA, however, Canada and the United States have continued to move on and dramatically integrate. Canada is America’s biggest customer and supplier. It is the largest export destination for 39 of the 50 U.S. states. Canadians buy more than do the European Union’s 28 nations in total. In 2017, Canadians made more than 40 million trips across the border to shop, live, travel, work, visit, or play. Corporations and individuals in both countries own enormous portions of one another’s economy and assets, with the result that most of the $2-billion-a-day “trade” is intra-corporate transfers of resources, goods, or services between one another’s head offices and subsidiaries.
The American and Canadian economy combined is bigger than the European Union’s, and also bigger than that of Japan, China, Germany, and France combined. The U.S.-Canada combo is bigger than South America in size, with more energy, metals and minerals, water, arable land, and technology than others, all protected by America’s military. Mexico can and should remain a valued trading partner, but it remains a generation or two away from full-fledged membership in the world’s biggest economic neighborhood.