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NAFTA’s Wreckage Shows Why It Must Be Replaced, Not Tweaked

June 07, 2017

During the campaign, candidate Donald Trump called the North American Free Trade Agreement (NAFTA) a “disaster” and promised he would renegotiate it to make it “much better” for working Americans or withdraw from the deal. Today, Public Citizen is releasing the first two in a series of briefing papers on NAFTA’s outcomes since it went into effect 23 years ago.

[Lori Wallach] May 24th, 2017 [Huffington Post]

Trump is right. NAFTA has been a disaster. But whether renegotiation under a Trump administration will fix the pact or make it worse remains to be seen.

Last week, the Trump administration sent the official notification to Congress to start renegotiations of NAFTA. As widely reported in the press, the tone of that notice did not reflect the “disaster” rhetoric of candidate Donald Trump.

As the countdown to NAFTA renegotiation starts – August 16 is the first day under Fast Track rules – we wanted to share our latest on the pact’s outcomes.

There are more than 910,000 specific U.S. jobs certified under just one narrow government program as lost to NAFTA offshoring and imports.

Because reporting under this program, called Trade Adjustment Assistance (TAA), is not mandatory, 910,000 represents a significant undercount. And, these are not mainly low-end manufacturing jobs. The losses include many aerospace and other high tech jobs, and of course the devastating loss of auto sector jobs. You can search by sector here.

And these are not all Rust Belt casualties, though the fury of voters in those states is what Trump exploited to get into the White House. Texas also got clobbered. You can also search by state here.

The broadest NAFTA damage has been on the types of jobs available for those without college educations economy-wide. Per the U.S. Bureau of Labor Statistics, two out of every five displaced manufacturing workers who were rehired in 2016 experienced a wage reduction, with one out of four taking a cut of greater than 20 percent. For the average manufacturing worker earning more than $38,000 per year, this meant an annual loss of at least $7,700.

And because those manufacturing workers joined the other workers seeking jobs in non-offshorable service sectors, wages in even the lower wage service sectors that have growing employment opportunities remained low. That wage effect is how manufacturing job offshoring under bad trade deals hits us all.

Contrary to conventional wisdom, we have a NAFTA trade deficit in agriculture. The agriculture trade balance with NAFTA partners fell from a $2.5 billion surplus in the year before NAFTA to a $6.4 billion deficit in 2016.

While the United States exported more corn under NAFTA (and displaced more than a million Mexican farmers, according to Mexican government data), our NAFTA deficits in beef and vegetables outweigh the jump in corn exports.

And contrary to the flood of press reports, U.S. farmers would not get slammed with 37 percent tariffs on corn if NAFTA disappeared. Starting in 2008, Mexico eliminated all tariffs on corn for the whole world under the World Trade Organization (WTO) rules. Mexico then later added a 20 percent tariff back on for white corn, but almost all U.S. sales to Mexico are yellow corn, which is duty-free, NAFTA or not. And, Mexico cannot change that WTO duty-free corn access unless it raises tariffs on all countries.

Some other highlights in the contrary-to-conventional-wisdom category excerpted from the briefing papers:

  • Trade-related losses in wages outweigh the gains in cheaper goods for most U.S. workers.The Center for Economic Policy and Research ran the actual data underlying the theory that all consumers gain from lower prices, while only some lose jobs to deals like NAFTA. They found net losses equal to 12.2 percent of wages for U.S. workers without college degrees (58 percent of the workforce) even after accounting for the benefits of cheaper goods. That means a net loss of more than $3,300 per year for a worker earning the median annual wage of $27,500.
  • Annual growth of U.S. services exports to Mexico and Canada since NAFTA has fallen to less than half the pre-NAFTA rate. Yes, imports jumped, especially in manufactured goods. But also the growth in U.S. manufacturing and services exports to the NAFTA partners increased more slowly since NAFTA. Annual growth in U.S. manufacturing exports to Canada and Mexico has fallen 69.5 percent below the annual rate seen in the years before NAFTA. Even growth in services exports, which were supposed to do especially well under NAFTA given a presumed U.S. comparative advantage in services, dropped precipitously.
  • The deficit is not fossil fuels. The share of the U.S. NAFTA goods trade deficit that is comprised of fossil fuels has declined under NAFTA (from 82 percent before NAFTA in 1993 to 16 percent in 2016). Minus fossil fuels, our NAFTA goods/services balance in 2015 was a $90 billion deficit, which represents a large U.S. deficit with Mexico and Canada in manufactured and agriculture goods.
  • There is a lot of confusion about the deficit number. The combined goods and services U.S. trade deficit with Mexico and Canada rose (in inflation-adjusted terms) from $9.9 billion before the NAFTA in 1993 to $134.3 billion in 2015 (the latest year of available services data). You can run the data here.
  • Canada NAFTA deficit: The U.S. goods and services trade balance with Canada in 1993 was a $17.2 billion deficit. That consisted of a $30 billion goods trade deficit and a $12.9 billion services surplus. In 2015, the last year for which full annual data is now available, the U.S. goods and services trade balance with Canada was a $34.6 billion deficit. That consisted of a $62 billion goods trade deficit and a $27.4 billion services surplus.
  • Mexico NAFTA deficit: In 1993, the U.S. goods and services trade balance with Mexico was a $7.3 billion surplus. That consisted of a $2.6 billion goods trade surplus and a $4.7 services surplus. In 2015, the U.S. goods and services trade balance with Mexico was a $99.7 billion deficit. That consisted of a $109.3 billion goods trade deficit and a $9.6 billion services surplus.
  • Since NAFTA, the annual growth of the U.S. goods trade deficit has been 47 percent higher with Mexico and Canada than with countries that are not party to a NAFTA-style trade pact – a group that includes China.

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