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Once Again, NAFTA Hasn’t Been a Disaster for America
President Trump has eased off China’s supposed currency manipulation, but he’s still pretty hot about NAFTA. When launching a probe yesterday into cheap Chinese steel — Beijing is hardly off the hook with the POTUS — he had this to say about that trade deal: “The fact is, NAFTA, whether it’s Mexico or Canada, is a disaster for our country.”
Almost certainly not true. Example: If these two JPMorgan charts didn’t indicate when NAFTA took effect, you couldn’t detect its impact on jobs:
Overall, JPM’s Jesse Edgerton, Silvana Dimino, and Gabriel Lozano sum up NAFTA’s impact this way, which I think is the consensus view: “Mainstream estimates suggest that NAFTA has modestly boosted North American GDP, but also left some workers worse off. Recent news suggests that the most likely changes that could come with NAFTA renegotiation would be unlikely to have major economic effects, but there are always risks of worse outcomes.”
The researchers also make a broader point on trade worth highlighting:
Published in General… even if aggregate effects are positive, the expansion of trade could still harm some individuals. And indeed, recent academic research has confirmed that US workers in areas and industries directly affected by trade competition have experienced long-lasting negative effects on their employment and wages. If some of these workers decline to accept lower-paying jobs and remain unemployed or decide to leave the labor force permanently, one might reasonably say that their jobs were destroyed by trade. It is unclear, though, if there is any reason to treat these jobs any differently than jobs destroyed by other manifestations of the creative destruction that is a central feature of capitalism. That is, should we be more concerned by jobs lost to trade with Mexico than jobs lost when inefficient businesses go bankrupt, or when technology replaces labor, or when a firm closes a plant in New York to open one in South Carolina? Most economists would likely say we should design a safety net to handle all of these situations.
The overall trend on manufacturing and employment has been known for decades. NAFTA is just a convenient scapegoat. It’s always easier to blame others than to fix the hard problems at home.
NAFTA has been positive and I’ve read stories over the years trying to make the case but it’s very difficult to make because economies are complicated and attributing cause and effect is almost impossible. NAFTA was proposed under Reagan but it was an accident. USTR Brock threatened the EU with bringing Mexico into the Canadian bi lateral if the EC wasn’t more forthcoming, especially on agricultural subsidies. He was bargaining. Mexico jumped on it as their President wanted to use it as a lever to open the Mexican economy. Mexico’s liberalization helped both economies but again it’s hard to measure as there was so much going on including a financial crisis. A lot of the maquiladora jobs that could have gone to S.E. Asia were already operating in Mexico prior to NAFTA and when China entered the world market, Mexico lost some of those jobs. We blame China for our loss but we’d already lost them to Mexico and SE Asia prior to NAFTA. Our problems are problems of adjustment to a rapidly changing world of which trade is only one piece. Our boardrooms and unions had also gotten fat and inept after 40 years of near monopoly. Finally we have a president who is addressing some of the adjustment problems regulations and taxes. Better that he review all our trade agreements than go after individual products or countries like Steel or China which we are guaranteed to screw up royally.
I wonder if the author of ‘supposed manipulation’ is aware of the price of gasoline for corporations that move shop to China is?
Cause 6 cents a litre is pretty good, when your paying $1.10 at the pump.
I was told this by a manufacturer who was offered that gas price if he moved his factory to China. His refusal amounted to “Yeah. But I cant raise my kids there.”
It’s not that difficult to see why Trump’s railings against NAFTA were effective. I live in Michigan, and many years ago I worked in manufacturing, specifically a company that produced leather seating for the automotive sector in our state. That manufacturing was moved to Mexico. My brother worked for a paper manufacturer, who after being purchased by a South African company eventually moved operations overseas. We both lost these high paying manufacturing jobs. I can already hear the ranting of the free-traders, screaming that the market worked in these two cases.
Just understand that there IS a human story there as well. We both were able to land on our feet, and in my case that push was what I needed to advance out of being paid for my labor to being paid for my brain. But how many don’t land on their feet? Is the opioid epidemic related to this giant loss of manufacturing jobs for family men without college degrees?
If you’re a man trying to provide for your kids, a message of bringing well-paying manufacturing jobs back home might resonate pretty well with you. To be clear, I’m not arguing the merits of NAFTA itself, just pointing out that Trump used the issue very effectively to his advantage and these arguments were much more effective in tearing down Hillary’s mid-western “blue wall” down than many might think.
So it had nothing to do with Federal and Mi regulations, taxes, work rules, unions, wages. How many escaped to the Southern US and not to Mexico. How many survived in the South because they could move some of the labor intensive operations abroad. How are we to go about sorting out what we do to ourselves through regulations and taxes, what technology does to us and what some other country does? Protectionism is good in theory but only freedom and simple law actually works. Will the people who brought us the regulations, taxes, mandates, work rules, standards also know who to protect and who not to help, they better because they’re the same people? I already know. It depends on K street presence and being old enough and big enough to play crony capitalism. Why on earth do you think highly protectionist economies are universally poor and free economies are universally prosperous? If it were not for foreign competition we wouldn’t know that we are destroying our economy from the top down until it’s too late. News. We’re destroying our economy from the top down and protectionism will be the final blow.
I think you’re putting words in my mouth there. I didn’t use any absolute statements of any kind. Of course it wasn’t all NAFTA, but to deny that NAFTA hit the rust belt pretty hard is simply denying reality. I’m not saying NAFTA is evil, or we should launch ourselves into protectionism, I tried to remind the author that free and open trade can have a cost to workers. And when you have free trade with a border-line 3rd world nation, you’re asking for your manufacturing workforce to be decimated.