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Trade Balance Has Very Little to Do with Trade Policy

July 18, 2017 by Matthew Rooney
Although most the objectives in renegotiating NAFTA set forth by the Administration Monday are consistent with the parameters defined by the Congress in the 2015 Trade Promotion Authority bill, the Administration’s preoccupation with the trade balance breaks with seventy years of U.S. trade policy – a period that has produced strong economic growth, a robust middle class, rising levels of education and wealth, remarkable innovation and broad international peace.

The Administration has set forth its objectives in renegotiating NAFTA, beginning with an overarching goal to “improve the U.S. trade balance and reduce the trade deficit with the NAFTA countries.”  Although most of the rest of the objectives are consistent with the parameters defined by the Congress in the 2015 Trade Promotion Authority bill, the Administration’s preoccupation with the trade balance breaks with seventy years of U.S. trade policy – a period that has produced strong economic growth, a robust middle class, rising levels of education and wealth, remarkable innovation and broad international peace. 

At the end of the day, the trade balance has very little to do with trade policy.  Our overall trade balance is driven primarily by excessive federal borrowing and our low levels of national savings, combined with our vibrant and welcoming business environment.  Our bilateral trade balances with Canada and Mexico are mainly the result of different rates of growth and product-specific supply chains that support our global competitiveness.  As a result, a negotiation that promises to reduce the trade deficit is unlikely to succeed.     

The reality is that NAFTA has been overwhelmingly positive for the U.S. economy and that the agreement provides an enduring framework for maintaining North America’s strength as the most competitive region in the world.  We support the Administration’s commitment to engage our most important trading partners, Canada and Mexico, in discussions to update and upgrade our trade relations.  In issuing its negotiating objectives today, the Administration did acknowledge that deeper and ongoing cooperation is the basis for making progress in areas from regulations to customs facilitation to environmental protections.  We strongly believe this is the right approach to build on the current economic foundation while promoting innovative trade policies in new areas such as digital trade. 

While the Administration has focused on a new trade agreement, the U.S. should also consider creative ways to enhance our prosperity in cooperation with our neighbors.  For example, we believe that creating a regional infrastructure bank would better enable us to address the routine frictions and costs of moving $2.4 billion in goods between Canada, the United States, and Mexico every single day. By the same token, we welcome and support emerging efforts in the private sector to enhance productivity by strengthening our talent pipeline, especially in manufacturing and logistics. 

The commercial stakes of getting a new trade deal right are high, but a well-functioning trade and investment relationship is also critical to collaboration on matters of national security such as counter-terrorism and counter-narcotics efforts.  The United States, Canada and Mexico are neighbors in North America forever, whatever becomes of NAFTA, and the prosperity and security of the United States will be strengthened by a negotiation that acknowledges this reality and builds on it in practical and pragmatic ways.


Author

Matthew Rooney
Matthew Rooney

Matthew Rooney joined the Bush Center in June 2015 following a career as a Foreign Service Officer with the U.S. Department of State. At postings in Washington and abroad, he focused on advocating market-driven solutions to economic policy challenges in both industrialized and developing countries, and on protecting the interests of U.S. companies abroad.

In Washington, Rooney was on loan to the U.S. Chamber of Commerce to create a high-level private sector advisory body for the Summits of the Americas, working closely with the U.S. private sector and with companies and business associations from throughout the Americas to negotiate an agenda to promote economic integration in the region.  Previously, he was Deputy Assistant Secretary responsible for relations with Canada and Mexico and for regional economic policy.  In prior Washington assignments, Rooney worked for then-Senator Fred Thompson, and supported negotiations to open global markets to U.S. airline services.

Abroad, Rooney was Consul General in Munich, a Consulate General providing a full range of Consular and export promotion services, supporting a permanent presence of 30,000 U.S. forces in two major base complexes, and carrying out a media and public relations initiative in support of U.S. diplomatic objectives in Germany. As Counselor for Economic and Commercial Affairs at the U.S. Embassy in San Salvador, El Salvador, he laid the groundwork for free trade negotiations between the United States and the five countries of Central America, and promoted market-based reforms for electrical power. Prior to this, he served in various posts in Germany, Gabon and Côte d’Ivoire.

Rooney studied Economics, German and French at the University of Texas at Austin and received his Master’s Degree in International Management at the University of Texas at Dallas.

Full Bio