Since the end of World War II, the United States has been on the leading edge of a global push for the free exchange of goods and services between countries. This move towards trade liberalization has not only connected the U.S. to economic superpowers overseas, but also encouraged close trade relationships with our North American neighbors. On January 1, 1994, this trilateral relationship between the U.S., Canada and Mexico was formalized with the signing of the North American Free Trade Agreement (NAFTA).
From its inception, NAFTA has been viewed as an asset for all countries involved. Since the 2016 Republican presidential primaries, however, Donald Trump has attacked the agreement relentlessly. He claims that NAFTA has caused the loss of “millions of jobs and thousands of businesses,” and he talks about the trade deficit as if it were the plague itself. Trump has made good on promises to renegotiate NAFTA to make it a “better deal” for the U.S.; representatives from each country involved are currently meeting to rewrite the agreement. Should these negotiations fail to produce a “better deal”, President Trump has made it clear that he intends to terminate U.S. involvement.
At the very best, Trump’s claims about NAFTA’s effect on unemployment are misleading. In a 2016 report on the effect of international trade agreements on the U.S. economy, the U.S. International Trade Commissioners cite a study by Francis and Zheng which shows that NAFTA has decreased U.S. unemployment by 4.4 percent. This decrease is not evenly spread across sectors and regions, however. In a 2014 paper, La Cruz and Riker model the decreases in employment due to NAFTA in various sectors, the most dramatic of which are seen in the sugar and apparel sectors (0.3 percent and 0.7 percent, respectively).
The job losses in these specific sectors are due to the ability of Canadian and Mexican companies to produce the same goods at a lower cost and sell them at a lower price than in the U.S. Net employment in the U.S. increased as a result of NAFTA for the same reason; that is, some goods are produced more efficiently in the U.S. than in Canada and Mexico, so the production of those goods is centralized in the U.S. rather than in Canada or Mexico. Basic principles of supply and demand tell us that prices in all three countries will be lower because goods are being sold by the most efficient producers.
Donald Trump’s incendiary rhetoric about NAFTA is irresponsible because it misleads the public about the nature and benefits of free trade. Because of NAFTA, prices are lower, American companies have more markets in which to sell their goods, and the U.S. has stronger economic ties with Canada and Mexico. These benefits are universal, positive consequences of free trade.
Unfortunately, Trump’s misleading dialogue resonates with workers who have lost their jobs as a result of NAFTA. For these workers, talk of lower prices and larger markets for American firms understandably rings hollow. They are unemployed, and usually the prospects for new employment are bleak. Compared with the population of the country their numbers are small, which facilitates efforts to organize and lobby for the return of their jobs. The benefits of free trade far outweigh these job losses, but they are felt on a much broader scale and are therefore less noticeable.
Such fluctuations in employment are the reality of a quickly and efficiently evolving global economy. If we, the United States of America, want to remain competitive in the global market, the country’s supply of labor must shift constantly towards the industries where we have a competitive advantage. We can, and should, assist those who lose their jobs as a result of these fluctuations, and engaging in free trade gives us more resources to do that. But promoting and pursuing policies that protect a handful of American industries but it will only hurt our country in the long run.
NAFTA was founded on the time-tested principle that free trade benefits all parties involved, regardless of size, wealth or population. It has been, and will continue to be, beneficial for both American companies and American consumers. As such, President Trump should be fighting for NAFTA, not fighting against it.
*On Sunday, September 30, 2018 (after this article was written), the United States, Canada, and Mexico announced that they had arrived at an agreement with respect to the renegotiation of NAFTA. Despite its shiny new name (USMCA, short for U.S. Mexico Canada Agreement) the new deal contains very few substantive changes to the old. This seems to suggest that the noise made about NAFTA on the campaign trail was more about pursuing a political win and less about economic progress. USMCA, should it ratified by lawmakers in all three countries, will be signed into effect on December 1, 2018.
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