A very happy Nigel Farage (front), the leader of the United Kingdom Independence Party (UKIP) celebrates with supporters after the Brexit victory being the result of the EU referendum, outside the Houses of Parliament in London, Britain June 24, 2016. (Photo: REUTERS/Toby Melville)
Britain’s vote to leave the European Union sparks speculation on where the United Kingdom might turn for new trading partners. How about NAFTA? Britain could become the fourth amigo, joining the United States, Canada and Mexico in the North American Free Trade Agreement.
It is not the purpose here to argue the merits of NAFTA, although political hollering to the contrary, most economists see NAFTA as having modestly helped the U.S. economy while turning a previously poor neighbor into a growing market for the U.S. and Canada.
Before making a case for Britain’s joining NAFTA, let’s consider what’s wrong with it. Mark Blyth, a political economist at Brown University and Scotsman by birth, lists some reasons Britain might not find NAFTA a good fit.
The Brits, Blyth told me, “do services exports — not things you can buy and sell and drop on your foot — so NAFTA is less relevant.”
But Mexico is rapidly modernizing, so couldn’t it become a market for U.K. financial services? “Possibly,” Blyth says, “but with a per capita GDP of $10,000 and a large inequality skew, it’s about as big a market in real terms as Belgium plus Sweden.”
No, Blyth and others say, Britain is geographically in Europe, and there is where it must trade. The big task at hand is to work out a post-divorce trading arrangement with its soon-to-be former EU mates.
However, Britain could still join the three amigos in a new trade agreement, former U.S. Trade Representative Robert Zoellick has argued. Zoellick urges the United States to offer Britain “a modern trade and investment accord” in concert with Canada and Mexico that — unlike the EU’s “shared sovereignty” — would let the U.K. retain more of its national independence.
Even as part of the European Union, the United Kingdom kept its own currency, the pound, rather than join the euro. This enabled it to maintain greater control over its own monetary policy. If it were to join the amigos, it would, of course, still keep the pound, just as the U.S. sticks with the dollar, Canadians have their dollar and Mexico uses the peso.
Meanwhile, talks are bumping along for the Trans-Atlantic Trade and Investment Partnership, which would promote trade between the European Union and the United States. Virtually ignored on these shores, the TTIP has ignited protests in the streets of Berlin and elsewhere in Europe alongside charges the accord would force unnatural American foods onto Europeans’ grocery shelves.
There’s also talk of secret agreements and loss of sovereignty, which is kind of funny coming from leading proponents of the EU. Observers also report seeing not a little anti-Americanism. Mexico and Canada already have free trade agreements with the EU.
There are calls for Mexico to join the TTIP, despite its existing EU trade accord. Why? Why not, says the Center for Strategic and International Studies in Washington. TTIP would put Mexico in the “big leagues,” where it belongs thanks to increasing competitiveness and economic liberalization.
Mexico has a way to go in catching up to rich economies, but it is now a bigger market for the United States than Brazil, Russia, India and China combined, according to CSIS. You wouldn’t know these things amid the hollering about NAFTA. (Nor are many Americans aware that the number of undocumented immigrants from Mexico in the U.S. is actually falling because of a stronger Mexican economy.)
But we digress. One reason Britain might want to join the amigos in a trade deal is Mexico’s great need for foreign direct investment. Brexit throws at least a small wrench in London’s status as Europe’s premier financial center. Anyhow, think about adding a fourth amigo.
