Lies that Trump sold: NAFTA
There may not have been a bigger set of lies in this presidential campaign than Donald Trump’s NAFTA pronouncements, which he wielded like a bludgeon at rallies and in the “debates”.
Like most dubious soundbites, refutation requires paragraphs, not words. Blame politicians who rely on “simplistic and superficial labeling of complex issues.”
There are two parts to Trump’s lie about the North American Free Trade Agreement. The first relates to its pedigree:
(President William Clinton) approved NAFTA.
The second is Trump’s opinion (not backed by data or economic analysis):
(NAFTA is) the single worst trade deal ever approved in this country.
Ironically, in 1992 supporters of NAFTA feared that Democrats would play the isolationist card. In 2016, that tune would be sung by the GOP candidate.
1. Which President and which Congress is responsible for NAFTA?
Always remember: presidents can only propose. Congress enables legislation and treaties; the president then agrees or vetos.
The simplistic answer is that Reagan campaigned on this promise in 1980 and negotiated the agreement that it replaced. Read on.
NAFTA was a centerpiece of the Republican President George H.W. Bush re-election campaign. It expanded a 5-year-old, US-Canadian free-trade agreement negotiated by President Ronald Reagan.
Bush negotiated NAFTA during the calendar year 1992 while running for re-election. Most of the field of Democratic candidate hopefuls supported NAFTA.
An October 1992 ceremonious initialing of the accord by all three heads of state took place in San Antonio.
Bush signed the treaty on December 17, 1992, about a month before Democratic President William J. Clinton assumed office. In so doing, Bush fulfilled “fast-track” legislative requirements, which meant Congress could only vote yes or no; the agreement itself was not subject to modification, only debate.
In response, Clinton reiterated his campaign points:
(Clinton) repeated his campaign assertion that there would have to be new job and environmental protections, and safeguards against sudden trade “surges,” but these could be settled without renegotiating the treaty with Mexico and Canada before he submitted implementing legislation.
Although Clinton took seven months to negotiate protections for workers and the environment, his efforts did not go far enough for those advocates.
Democrats controlled Congress during the first two years of Clinton’s term. The House passed NAFTA 234-200 (16 more than needed) in November 1993. Republicans overwhelmingly endorsed NAFTA: 132-43. Democrats in the House opposed it, 156-102. The lone independent opposed NAFTA.
This is, for the moment, an opportunity to expand our trade, to reach out beyond our borders . . . to seize the future. Is it good for America or not? I believe passionately it is good for America.
NAFTA has not been controversial among the general electorate. In 1997, only 17% of those polled thought we should abandon NAFTA. In March 2003, those disapproving of NAFTA had dropped to 12%.
As recently as May 2015, most Americans thought trade was good for the country, according to Pew Research data. About six-in-ten independents (62%) and Democrats (58%) thought free trade agreements had been good for the country; and 53% of Republicans agreed as well.
Pedigree: NAFTA was Reagan’s vision, realized by Bush, adopted by Clinton, and affirmed by Congressional Republicans and Democrats.
2. Has NAFTA been the nation’s worst trade deal?
Before we can assess a claim like this, we have to define what “worst trade deal” means. Are we talking about the impact of trade on consumers, who generally see product prices go down when borders open, or on labor, which may see jobs exported?
To the first, we need to know the impact on consumer spending. Bloomberg reported last year that UCLA and Columbia University economists demonstrated that trade increases the real incomes of the middle class by 29% and poor households by 62%. That’s because trade lowers the prices of consumables (all things being equal).
To the second, we need know if NAFTA triggered a massive export of manufacturing jobs. Although that’s the implication behind Trump’s claim, the data suggests the claim is great big fat lie.
First, manufacturing jobs peaked in 1979, while Jimmy Carter was in the White House. The fluctuation the next 20 years wasn’t very different from the prior 10 years. But in 2001, the first year of the Bush Administration, something changed.
What happened? In 2001, China entered the World Trade Organization, a negotiated process that began 15 years earlier. When Republicans were in the White House. In fact, we had treated China like WTO nations since 1980 (pdf).
From 2000-2009, the economy shed one-third (5.7 million) of its manufacturing jobs. Some of those jobs were casualties of the Bush’s Great Recession. However, the economy recovered 720,000 jobs during the remainder of Barack Obama’s term, despite the fact that China became the world’s leading manufacturing economy in 2010.
Last year, economics research suggested that China’s entry into WTO led to the loss of 1-2 million of the American manufacturing jobs lost since 2000. The culprit: low-cost imports. The primary retail vendor: WalMart.
Automation also played a big role in the general decline in manufacturing jobs. In the 1980s, steel workers needed 10.1 man-hours to produced finished ton; by 2014, that was down to 1.9 man-hours per finished ton of steel. One reason for the reduction: 50 percent of all steel produced in the U.S. is made from recycled material.
Despite the jobs lost to China and automation, the U.S. produced durable goods at an all-time high in 2015, more than triple 1980. The sector hasn’t disappeared; it’s changed.
Moreover, if we look at the economy as a whole, in January 1993 unemployment was 7.3%. In January 2008, before the recession kicked into high gear, it was 5%. And today it is 4.9%.
Worst trade deal claim: The post-2000 decline in manufacturing jobs coincides not with NAFTA but China’s entry into WTO and reflects systemic changes in not just the U.S. economy but the global economy.
The economy has changed
Today’s economic system does not have high paying jobs for people who drop out of high school or have only a high-school degree. The transformation is no less wrenching than that away from agriculture.
In 1850, farmers accounted for two/thirds of the American workforce. By 1900, that had dropped to two-in-five. By 1950, one-in-eleven. Hired farm workers are less than 1% of the total labor force today.
In 1960, about one in four Americans worked manufacturing. Today that’s about one in 12.
The situation in the United States mirrors that around the globe (pdf).
Employment in manufacturing has fallen in most major manufacturing countries over the past quarter-century. In the United States, manufacturing employment since 1990 has declined in line with the changes in Western Europe and Japan, although the timing of the decline has differed from country to country.
Job growth has happened in other sectors, some of which did not exist in 1960. And manufacturing jobs are increasingly specialized, with highly educated workers managing robotics and automation rather than a bus load of high school graduates.
Yes, there is pain in communities once supported by mom-and-pop businesses (killed by WalMart) and robust factories that relied on what we call unskilled (ie no college degree) workers.
We need policies that address dislocation. We need politicians who do not exploit fear in the face of ignorance. And we need journalists who challenge false claims rather than act as stenographers.
Trump’s proposal: raise tariffs
Protectionism is not the answer. Protectionism is widely accepted to have extended (not caused) the Great Depression. In the United States, the Smoot–Hawley Act raised U.S. tariffs to record levels on more 20,000 imported goods. Other nations reciprocated. The global recession worsened. And US imports dropped by 40% in the two years following Smoot-Hawley (1930).
Nevertheless, protectionism is Trump’s promise: 45% tariff on goods from China. By value, China manufactures three-quarters of mobile phones and 9-in-10 tablets and laptops imported into the US.
Economists, in general, support the concept of trade because of its positive effects on consumers. Trade barriers do not reverse economic trends.
The historical record of American protectionism is one of chronically declining domestic industries, higher consumer prices and destroyed jobs. Protecting the U.S. auto and steel industries, which began in the 1970s, did not allow them to succeed.