Why Perot Is Still Wrong

By ROBERT WRIGHT

What's wrong with this picture? Mexico's currency crash had just spoiled the first anniversary of the North American Free Trade Agreement, and there sat Ross Perot, looking very, very grave. "I do not want to be vindicated," the prophet of post-NAFTA doom told one newspaper reporter. "I would like to be wrong."

Loose translation: "See? I was right." Like other NAFTA critics, Perot sees Mexico's turmoil as proof at last of the trade pact's perils. And he sees more proof in the offing: after the peso's plunge, with Mexican labor even cheaper, American jobs will head south en masse. The poorly concealed glee of NAFTA's foes gives the Clinton Administration yet another thing to get defensive about. If NAFTA was a blunder, then doubts arise about the centerpiece of Clintonomics: free trade, as in NAFTA, GATT and plans for Pacific Rim and Pan-American trade zones.

But this is one Clinton p.r. problem that should prove manageable. NAFTA's aftermath -- including Mexico's latest crisis -- has yielded more doubts about Perot's world view than about the President's.

Oddly, the peso's devaluation actually accents the emptiness of Perot's dire warnings. The "giant sucking sound" was supposed to come largely from an unequal trade flow. Dollars, chasing cheap Mexican goods, would head south faster than pesos headed north, and jobs would follow the prevailing current.

But this imbalance would also have had a second effect: making pesos precious, thus lessening pressure to devalue. Alas for the peso, Perot's nightmare failed to materialize. U.S. imports from Mexico did grow sharply ; -- by $7 billion, to reach $40 billion, within 10 months; but, as free traders had predicted, so did exports to Mexico -- by $8 billion, reaching $42 billion. Thus Mexico's worldwide trade gap -- now around $30 billion -- never got the relief implied by Perot's fears. Its currency finally crumpled under the pressure.

This isn't to say NAFTA caused the crash. In some ways it helped the peso, by attracting investment from the U.S. and elsewhere. But the pact didn't give Mexico the huge peso-protecting cushion that critics envisioned. It's true, as Perot will gladly remind you, that he actually predicted a post-NAFTA peso devaluation. But not this kind of devaluation. In his scenario, a secretly planned devaluation would be triumphantly unveiled -- a wily Latino ploy that by cheapening Mexican goods, would amplify the sucking sound. Reality proved less rife with intrigue than Perot's imagination. Mexico's leaders actually fought devaluation long and hard but were overwhelmed by the skittishness of foreign investors, including their worries about Mexican political turmoil.

But wasn't this turmoil -- especially the rebellion in Chiapas -- itself an outgrowth of NAFTA? It's true that farmers there will suffer as protective trade barriers fall. But a deeper source of their discontent is sheer, longstanding poverty. And it's no coincidence that Chiapas, Mexico's poorest region, is also farthest from the U.S. and the balming effect of trade. The unrest of Mexican peasants is undeniably a reminder that free trade's overall benefits entail real costs, but it's equally a reminder that the alternative is worse. In a thoroughly protectionist world, all of Mexico might today look rather like a giant Chiapas.

Even if Perot granted that the plummeting peso is not itself an indictment of NAFTA (don't hold your breath), he would have his fallback claim: after the plunge, NAFTA's perils will loom large. Certainly a weakened peso may encourage a net flow of cash southward. And though devaluation would have had the same effect in a pre-NAFTA world, NAFTA's lower trade barriers would magnify it. But whether this is bad news depends on which side of the NAFTA debate you bought to begin with: Is Mexico's gain America's loss, or is trade a non-zero-sum game, in which both sides win more than they lose? Events of 1994 tend to support the latter case.

NAFTA boosters have noted all along that when dollars head south, it means American consumers are enjoying lower prices. Critics deemed this anti- inflationary tonic a bourgeois concern, cold comfort to workers who lost jobs in the process. But 1994 brought a blunt reminder that when we fail to subdue inflation, the Federal Reserve will step in; and its favorite weapon, higher interest rates, will surely cost jobs in the long run. Thus today's gain for consumers may be tomorrow's gain for workers (not to mention the fact that most consumers are workers).

A second virtue of buying Mexican goods was also driven home with jarring force last year. Enriching our neighbors is surely a more civilized way of staunching illegal immigration than California's Proposition 187, which in its harshness made even a few supporters squeamish. The case for NAFTA has always focused on the long term: that freer trade would slowly boost prosperity on both sides of the border, notwithstanding acute growing pains; and that by making Mexicans less threatening neighbors, it would eventually mute the raw nativism that is surfacing in California and elsewhere. That case looks at least as strong today as a year ago.