By Tina Irgang
Voters disillusioned about the effects of free trade on American workers have played a significant role in boosting the presidential bids of both Donald Trump and Bernie Sanders this election season. So what are the facts about the impact of trade agreements on U.S. jobs, and what is the future of free trade in the U.S.?
The two most significant deals being discussed by the candidates are the North American Free Trade Agreement (NAFTA), which took effect in 1994, and the Trans-Pacific Partnership (TPP), which is currently awaiting approval from Congress.
Since TPP is not yet in effect and leading presidential candidates in both parties have said they’ll oppose all or some of it, let’s talk about NAFTA’s impact.
NAFTA and U.S. jobs
“It is difficult to determine causality between NAFTA’s implementation and economic growth, and it is impossible to quantify the counterfactual — how trade policy might have liberalized without NAFTA,” according to the Council on Foreign Relations, a non-partisan think tank. Or, to put it more simply: Any benefits in economic growth or trade following NAFTA’s passage might have happened without the agreement, but you can’t prove a past that didn’t happen.
So if we’re a bit shaky on the benefits of NAFTA, what about harm? Did the agreement definitely cost U.S. jobs?
The answer is a solid “yes but.”
The left-leaning Economic Policy Institute, for instance, argues that NAFTA “has caused the displacement of production that supported 879,280 U.S. jobs. Most of those lost jobs were high-wage positions in manufacturing industries.”
While the institute’s figures on NAFTA have been a popular talking point for politicians, including Barack Obama but also Donald Trump, other economists have disputed its accuracy, says FactCheck.org, an initiative of the Annenberg Center for Public Policy.
For example, a detailed study in 2004 by the Carnegie Endowment for International Peace found that “NAFTA’s net effect on jobs in the United States has been minuscule, given the size of the U.S. economy and the importance of other trading partners. The best models to date suggest that NAFTA has caused either no net change in employment or a very small net gain of jobs.”
Experts from the University of Pennsylvania’s Wharton School agree that while jobs have undoubtedly gone overseas, NAFTA’s impact on that trend pales in comparison to other factors. If NAFTA had not been signed, argues management professor Mauro Guillen, “the jobs would probably have gone to China or somewhere else; most jobs have relocated to China. The U.S. had a trade deficit with Mexico of $54 billion [in 2013], but with China, it was [a deficit of] $318 billion, so the [U.S.] deficit is five times bigger with China than with Mexico. In other words, you would calculate, maybe for every job we have lost in the U.S. to Mexico, five were lost to China.”
Free trade: Winners and losers
Overall, the U.S. has gained millions of jobs since NAFTA was signed. The exact figures vary from one source to the next, but the overall trend based on data from the U.S. Bureau of Labor Statistics is this: Job gains were significant during the Bill Clinton presidency (21 million, according to CNN Money), slowed down a bit under George W. Bush (5.7 million) and picked up again under Barack Obama (9.3 million).
So perhaps the issue is not that the economy has been doing badly with free trade overall, or even the provisions of a specific agreement.
Rather, it’s that a specific segment of the population — U.S. manufacturing workers — has been on the losing side of the increased competition that comes with globalization, argues a Council on Foreign Relations expert: “If you analyze the sum total of all the trade agreements that the U.S. has signed over the last decade, they have definitely reinforced the globalization of the American economy, which has put a lot of sectors, particularly manufacturing, under intense new competition. But only a small fraction of that competition has actually come from the countries that are part of NAFTA, namely Mexico and Canada. Most of the competition has come from the rest of the world, particularly from China, from India, from the European Union and from other places.”
What’s next on free trade?
Frontrunners from both parties have been very vocal about the damage free trade deals have wrought on U.S. manufacturing, and have expressed their opposition to TPP.
“[Hillary] Clinton has moved to close the distance with Sanders on trade, talking up her opposition to the TPP and the folly of past deals, like NAFTA,” Fortune points out.
“One of the factors driving this economic devastation is America’s disastrous trade policies,” says Donald Trump in a USA Today op-ed. “And the situation is about to get drastically worse if the Trans-Pacific Partnership is not stopped.”
Clinton’s position on free trade has shifted several times over the years, as The Washington Post notes. So it seems possible that as president, she could again offer her support for TPP, which she helped negotiate as secretary of state.
It’s harder to predict what a Trump presidency would mean for free trade, but it’s worth noting that he, too, has in the past supported it: “No one can afford to be isolationist any more. Keep your focus global. Globalization has torn down the barriers that have formerly separated the national from the international markets,” Trump said in his 2008 autobiography, Never Give Up.
As with most issues, the campaign trail is likely a poor predictor of eventual policy outcomes. However, it seems safe to say that the 2016 election is a pivotal one for the future of free trade in the U.S.
Tina Irgang is the production editor for SmartCEO. Contact her at email@example.com.