Blackadder’s Lair

The home of many a cunning plan

Much Ado About Very Little

There’s been a lot of talk in the Democratic primary campaign recently on the issue of trade. Both of the remaining Democratic Presidential candidates have denounced NAFTA, often in extreme terms, and both have been caught having subordinates telling foreign governments they don’t really mean it. But as Philippe Legrain pointed out in Sunday’s Washington Post, imports from Mexico in 2007 equaled only 1.7% of the total U.S. economy, while exports equaled 1.1% (and needless to say, at least some of those imports and exports would have occurred even absent NAFTA). It’s unlikely, therefore, that NAFTA has had a dramatic effect (positive or negative) on the U.S. economy.

Of course, the fact that NAFTA hasn’t had a major impact on the U.S. economy generally doesn’t mean it hasn’t had a significant impact on certain sectors of the economy, namely manufacturing. It’s true that, since NAFTA the number of manufacturing jobs in the U.S. has declined by about 2.7 million. Yet as Daniel Ikenson has noted, blaming NAFTA for this decline is a bit hasty:

Although U.S. manufacturing employment peaked in 1979 and has been trending downward since, there was an uptick in employment in the first few years after NAFTA took effect. Between 1993 and 1998, 500,000 net jobs were created in manufacturing. Did NAFTA create those jobs? I wouldn’t make that claim, but it certainly has more empirical support than the opposite claim—that NAFTA cost jobs….

During the pronounced manufacturing recession of 2000-2003, there was a precipitous drop of 2.8 million manufacturing jobs, but it’s hard to blame NAFTA for that. Manufactured imports from NAFTA countries were flat during that period: imports in 2000 were higher than the average for 2001 through 2003. Again, if you must blame NAFTA, look to the export side of the equation. U.S. exports dropped 11 percent from 2000 to 2003.

And for the record, since 2004, there has been a decline of 300,000 manufacturing jobs nationwide. That rate of 100,000 per year (vs. the rate of 193,000 per year during the entire post-peak period of 1979-2007) suggests that even the basis for the political rhetoric is about five years too stale.

As an aside, while it’s true that the number of U.S. manufacturing jobs has declined over the past few decades, it’s not true that U.S. manufacturing as a whole has declined. As the chart below indicates, the U.S.’s manufacturing output has actually gone up significantly over the last 40 years:

The fact that manufacturing output has been going up at the same time manufacturing employment has been going down is that manufacturing productivity has been going up even quicker. In fact, it is probably the case that to some extent manufacturing employment has been going down precisely because manufacturing productivity has been going up. But that’s a lesson for another day.

You might wonder why, if NAFTA’s overall effect on the U.S. is minor, it has engendered so much controversy. The answer, I think, lies in the fact that very often politics is more about symbolism than it is about the actual consequences of a given policy. Whatever it’s real effects, NAFTA has gotten tied up in people’s minds with all sorts of other issues, anxieties, and problems, and taking a stand against it (even if this doesn’t amount to much), is a good way for politicians to show that they care.

If this sounds implausible to you, consider that the trade deal with Colombia currently before congress is being vigorously opposed by both Democratic candidates, as well as by organized labor, despite the fact that only about 8% of imports from Colombia are currently subject to tariffs (and the new deal would leave them largely untouched).

(MHT: Cafe Hayek)


April 14, 2008 - Posted by | Election

1 Comment »

  1. At root, the problem seems to be one of extending the anecdotal to the general. When productivity increases (or when inherently time intensive jobs are moved to lower wage environments) society as a whole will end up better off, but there will always be a certain subset of people who cannot or do not adapt to the change.

    Every so often I read an article about the fall of the American auto industry which bemoans, “There just aren’t many jobs left any more where an American worker with only a high school education can count on making 80k+ per year and receiving a full pension at 60 or 65.” To which my thought is, “Yes, and?” Unless one is naturally brilliant and/or a serious autodidact, never going beyond high school has been considered career suicide in most of the country for fifty years. It just took the northern midwest rather longer to catch on to this than others.

    So in some cases, I think the perception that we’re being massively hurt as a society by free trade is a result of subjective impressions based on the experience of those who were, for a while, protected from the general trends of the modern labor market by regional specialization and protectionism. And yet, once reality intrudes (and people elsewhere want a piece of the pie) these areas of privilege invariably break down.

    Comment by Darwin | April 14, 2008 | Reply

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