Tyler Cowen: uncertainty

Transcript context

…Remember, we had huge fiscal surpluses in the 1880s, late 1870s and 1880s. So there was clearly scope for a big tax cut in tariffs. You don’t need protectionist tariffs to raise enough revenue to fund the federal government. The sugar tariff alone . . . It’s in the book. I can’t remember off the top of my head. The sugar tariff alone accounted for 25 percent of all revenue coming from the tariffs, maybe even more. You could tax a few select commodities, have them as excise taxes. That raises all the revenue that you need. You don’t need heavy duties on steel rails and cotton textiles and things of that sort, which truly were protectionist duties. They didn’t raise much revenue. They did block imports and helped out domestic interests that way. Fast-forwarding in time quite a bit. The 1990s, we passed NAFTA, North American Free Trade Agreement. At the time, many people were quite optimistic about NAFTA. But today, as you know, there are numerous research papers which look pretty hard to find any gains at all. You may be able to find small gains from NAFTA. But it’s unclear what the payoff from NAFTA really has been. If you look at the Mexican economy, there doesn’t appear to be convergence. They’re growing at a rate between two and two and a half percent. Looking backwards, what is your view of NAFTA? Did we, in some way, do the treaty wrong? Other than mere updating, how might you revise NAFTA today? I spoke to one trade negotiator about this once. They said NAFTA is not a good trade agreement. NAFTA is an effing great trade agreement. And I agree. It’s a great trade agreement. Once again, US barriers towards Mexican products were already pretty low. So it’s not like we’re getting some big consumer surplus gains from taking down pretty big barriers. What it did was solidify the US-Mexican relationship. Here you’re appealing to foreign policy a little bit. But also, you’re trying to undertake measures to strengthen the Mexican economy and have a long-term partnership. I think it’s, on net, been very good for Mexico. Once again, it hasn’t been perfect. You recall that, within a year after NAFTA went into effect, they had a financial crisis. They’ve had major banking and financial issues through the late 1990s into the 2000s. Obviously NAFTA’s not a silver bullet, where it just makes the Mexican economy transformed into something great. There are a lot of still reforms that have to be done in Mexico, some of it macroeconomic, others not. But to say that we’d be better off without NAFTA, I don’t think either the United States or Mexico would be. Here’s where you get these nebulous things. John Stuart Mill talked about them, in terms of the benefits of trade. There is an attitudinal shift in Mexico, a much greater openness towards the world. That’s been all to the better. We’ve seen the basically one-party state dissolve into a competitive democracy. So I think NAFTA and the greater openness that it’s brought about have been very good for Mexico.…

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