Commentary

How Pennsylvania Gains From NAFTA

The 1993 North American Free Trade Agreement, and free trade in general, have somehow emerged as hot campaign issues in the Democratic primary race. This is particularly odd in Pennsylvania because the state economy has done very well in exporting manufactured goods — something that would have been quite difficult if Canada and Mexico had not agreed to reduce their tariffs on U.S. goods.

Pennsylvania shipped $9.2 billion worth of export merchandise to Canada in 2007 — 32 percent of the state total — and $2.2 billion of goods to Mexico, according to the International Trade Administration. Pennsylvania’s exports to Mexico rose 81 percent from 1993 to 2003 and exports to Canada rose 61 percent. The trade association notes that export-supported jobs linked to manufacturing account for an estimated 4.3 percent of Pennsylvania’s total private-sector employment. Nearly one-sixth (16.5 percent) of all manufacturing workers in Pennsylvania depend on exports for their jobs.

At the national level, Canada accounted for nearly 16 percent of all U.S. imports of merchandise last year, but also 22 percent of American exports. Mexico accounted for 11 percent of U.S. imports, but 14 percent of U.S. exports. Oil and gas accounts for over 16 percent of American imports from Mexico and (including electricity) nearly 26 percent of our imports from Canada. The dollars we spend on Canadian and Mexican imports are mainly used to buy U.S. exports — mostly goods, but also investments and services provided by such Pennsylvania giants as Vanguard, Cigna, Mellon and PNC Bank.

For all the talk about lost jobs, they’re hard to find in the data. The unemployment rate in Pennsylvania was 6.9 percent in September 1993 when NAFTA was enacted, and it is 4.9 percent today. Nonfarm payrolls have grown by 682,500 since then, or 13.3 percent.

Technology (computers and robots) has long been shrinking assembly-line manufacturing jobs in virtually every nation. If we exported manufacturing jobs, it must have been to the moon. A 2006 Banco de Mexico study worries that in recent years employment in (Mexican) industry has been decreasing whereas the employment in the service sector has been increasing. Even China eliminated 10 million manufacturing jobs from 1991 to 2003, according to the Asian Development Bank.

Some U.S. jobs are lost every year, even as more jobs are added, because some businesses shrink or fail. Critics of NAFTA toss out anecdotal examples of job losses, which they loosely blame on import competition, rather than on competition from other states. For example, U.S. Steel (now USX) has its headquarters in Pittsburgh, but many of the company’s 49,000 employees are now in Indiana, Alabama, Minnesota, Illinois and Texas.

One of the biggest things NAFTA accomplished was to cut steep Mexican tariffs on U.S. goods. Half of all American imports from Mexico were already duty-free before NAFTA because of the 1976 Generalized System of Preferences. Mexico, on the other hand, imposed brutal tariffs on American goods. The U.S. tariff on Mexican cars was 2.5 percent; the Mexican tariff on U.S. cars was 21.5 percent.

NAFTA slashed the Mexican tariff on Heinz Ketchup from 20 percent in 1993 to zero since 1998. In exchange for such dramatic reductions of Mexican tariffs, the U.S. agreed to cut an 8 percent tariff on tomatoes and cut flowers, a 26 percent tariff on frozen orange juice, and a 35 percent tariff on canned tuna. As a result, U.S. consumers saved a lot of money at the grocery store.

Tariffs don’t protect jobs. They protect monopoly profits. Tariffs just raise the cost of living and the cost of production, making consumers and producers poorer. Nasty U.S. tariffs on sugar, nuts and milk, for example, impose huge costs on Hershey.

The mutual reduction of trade barriers between Canada, Mexico and the U.S. made all three economies more efficient and more affluent. And, yes, NAFTA was unquestionably good for Pennsylvania.

Alan Reynolds, a senior fellow with the Cato Institute, is the author of Income and Wealth.