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Don’t Make NAFTA a Scapegoat

03/17/2008

Free trade accounts for only a small portion of lost manufacturing jobs.

At least publicly, both Hillary Clinton and Barack Obama have pledged to “renegotiate” the North American Free Trade Agreement (NAFTA) if elected president. The assumption is that blaming NAFTA for lost manufacturing jobs will help a candidate win Democratic primary votes in states such as Ohio and Pennsylvania.

Clinton and Obama may be right about the politics of NAFTA, but they are wrong about the economics. While the past three decades have indeed seen a major drop in U.S. manufacturing employment, NAFTA accounted for a relatively small number of manufacturing job losses. As American Enterprise Institute scholar Philip I. Levy has noted:

“Manufacturing employment in the United States did hit a peak and then begin a steady decline. The problem is that the peak was in 1979, 15 years before NAFTA came into force. The long-term decline of American manufacturing jobs has much more to do with technological change than with trade. We’re producing more stuff with fewer workers.”

According to economists Martin Neil Baily of the Brookings Institution and Robert Z. Lawrence of Harvard, only 11 percent of the U.S. manufacturing jobs lost between 2000 and 2003 were lost due to trade. For that matter, “falling exports, not rising imports, were responsible. Service sector offshoring destroyed even fewer jobs. These figures are tiny relative to the millions of positions lost and created every year in the United States by normal market forces.” (The entire Baily-Lawrence study can be found here.)

Meanwhile, a 2005 study by three economists at the Federal Reserve Bank of New York concluded that “the number of jobs embodied in U.S. net imports is small relative to total employment in the United States—2.4 percent of the total, at the most—both historically and in recent years. Moreover, this estimate is sometimes positive and sometimes negative, suggesting that international trade does not necessarily mean a loss of jobs for the United States.”

 
AEI