November 3, 2017

I’ve had some interesting conversations going through customs in the US and landing in Atlanta two weeks ago was no exception. I was travelling on to Little Rock, Arkansas and got the obligatory ‘why are you going there?’ question. “To visit the Clinton Presidential Library”, I said. It turned out Clinton was the officer’s “favourite president,” but he’d made one “big mistake”… No, not that mistake. “NAFTA.”

NAFTA – the North American Free Trade Agreement, signed into law by President Clinton in December 1993 – has been headline news in the US. The agreement is currently being renegotiated, as promised by Candidate Trump. In August, President Trump reiterated his view that NAFTA is the “worst trade deal ever made”, and with negotiations seemingly at an impasse, his threat to terminate the deal looks like a real possibility.

There has been much debate on the pros and cons of NAFTA, but on balance the evidence suggests it’s been beneficial – the problem is, that’s not really the point. Focus on retooling NAFTA is dangerously distracting from the more powerful forces that threaten US jobs.

Jobs, jobs, jobs

Trump’s stance is based on his view that NAFTA has destroyed American manufacturing jobs. For once, the President is factually correct… just. The deal is estimated to have resulted in a net loss of around 100,000 manufacturing jobs.1

That, however, is just part of the story. Research has shown that for each job lost as a result of NAFTA there have been “several hundred thousand dollars of gains to the economy” as a result of increased productivity and lower prices. The cheap consumer goods, which help reduce the cost of living for millions of Americans, are overlooked by Trump. As are the export benefits of NAFTA and the deeply integrated nature of manufacturing supply chains across the three nations. ‘Intermediate goods’, like plastic and steel, are imported tariff-free, which in turn makes American products more globally competitive. Advanced manufacturing and energy are particularly dependent on these goods.2

All of which, of course, is little comfort to those Americans whose solid, well-paid manufacturing jobs have disappeared, and who haven’t benefited from the new, higher paid jobs that have been created.3 To them it’s simple: NAFTA equals job-killer. That was the view of my Atlanta customs officer, and it’s widely shared – Americans show the lowest support for NAFTA of all three nations, just 51% see the deal as a good thing (compared to 74% of Canadians and 60% of Mexicans).4

Some of those jobs will be unaffected if the deal collapses (trade won’t simply stop). But for sectors such as auto and agriculture, the likely imposition of high tariffs would be disastrous
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There’s no blank page

The problem is that scrapping NAFTA isn’t going to return America to a golden age of manufacturing.

In fact, it’s likely to make things worse. Caroline Freund of the Peterson Institute for International Economics goes so far as to say: “If the US blows up NAFTA, it will blow up the US economy.”5 That feels an overstatement, but there’s no doubt that after more than two decades, unpicking the deal would have real consequences. There’s no blank page to work with.

The US Chamber of Commerce calculates 14 million jobs depend on trade with Canada and Mexico – five million specifically on the additional trade generated by NAFTA.6 Some of those jobs will be unaffected if the deal collapses (trade won’t simply stop). But for sectors such as auto and agriculture, the likely imposition of high tariffs would be disastrous – for states dependent on those industries, scrapping NAFTA would mean job losses.

PRESIDENT DONALD TRUMP’S ESCALATING THREAT TO TRIGGER NAFTA’S CANCELLATION CLAUSE AS A HIGH-PRESSURE BARGAINING TACTIC HAS RAISED QUESTIONS. CREDIT: ANDREW HARNIK

NAFTA is a scapegoat 

Put NAFTA’s impact on jobs in perspective, however, and you can’t help but wonder why so much time and energy is being expended on a side-show. It’s like treating a patient’s paper-cut while ignoring his gunshot wound. The US lost almost six million manufacturing jobs in the decade starting in the year 2000 – but NAFTA has resulted in a net 100,000 reduction. (If you want some historical perspective, economist Brad DeLong points out that manufacturing as a share of employment has been collapsing since the 1950s.7)

Indeed, many of the impacts associated with NAFTA would have occurred without the deal – that’s the process of globalisation. The US has no NAFTA-equivalent deal with China, but trade between the two countries has ballooned, resulting in similar benefits and drawbacks.

The gunshot wound? That’s automation. The drive for more efficient means of production has been constant. Throughout history, as technology from steam to electricity has evolved, low-productivity jobs have been replaced by higher skill, higher pay roles. But today we’re facing automation on an unprecedented scale. Seven times the number of jobs have been lost to automation as to offshoring. Why isn’t the Trump administration focusing on that?

THERE’S NO VERSION OF NAFTA THAT WILL SEE AGRICULTURE JOBS RETURNING TO US STATES LIKE ILLINOIS, PICTURED HERE FROM 10,000 FEET. CREDIT: PRESTON KERES/PLANET PIX VIA ZUMA WIRE

Where are the meaningful policies to equip displaced workers with the skills to compete in new sectors? What is being done to incentivise businesses to re-train staff whose jobs are under threat of automation? Could large businesses making people redundant be required to provide a retraining package alongside the usual compensation payments?

Public employment services should be using local labour market data to identify growing and declining sectors and tailor their services accordingly. In a world where technological change happens at pace, continuing education and skills training is essential – where are Trump’s tweets on that?

Scrapping NAFTA is a bad idea – it’s highly unlikely manufacturing jobs will return to America, yet highly likely that jobs in the auto and agricultural sectors will be lost. But twist or stick, the outcome will be a footnote in labour market history. Whatever the result of the negotiations, the march of automation is not going to stop. In Atlanta, when I suggested NAFTA wasn’t all bad the customs officer asked, “Don’t you care about the poor?” I do, which is why I want to treat the gunshot wound.

FOOTNOTES
  1. Joshua Meltzer and Danny Bahar, NAFTA under the Trump – the myths and the possibilities, Brookings, 23 February 2017
  2. Joseph Parilla, How US States rely on the NAFTA supply chain, Brookings, 30 March 2017
  3. Research on the impact of NAFTA shows that on average, export-related jobs pay 7-15% more than lost import-competing jobs; Gary Clyde Hufbauer, Cathleen Cimino and Tyler Moran, NAFTA at 20: Misleading Charges and Positive Achievements, Peterson Institute for International Economics, May 2014
  4. Bruce Stokes, ‘Views of NAFTA less positive – and more partisan – in U.S. than in Canada and Mexico’, Pew Research Centre, 9 May 2017
  5. Alexia Fernandez Campbell, ‘The US, Canada, and Mexico are renegotiating NAFTA — here’s what each country wants’, Vox, 5 September 2017
  6. .The Facts on NAFTA. Assessing Two Decades of Gains in Trade, Growth, and Jobs, U.S. Chamber of Commerce, no date
  7. Bradford DeLong, ‘NAFTA and other trade deals have not gutted American manufacturing — period’, Vox, 24 January 2017

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