Tag: north american free trade agreement

More Trade, More Jobs

Our friends at the Economic Policy Institute are at it again, issuing another study this week that shows some particular trade agreement has cost X thousands of jobs over a certain number of years.

The latest target of EPI’s flawed model is the North American Free Trade Agreement. Enacted in 1994, NAFTA has created a free trade zone comprising the United States, Canada, and Mexico. According to the EPI report,

U.S. trade deficits with Mexico as of 2010 displaced production that could have supported 682,900 U.S. jobs; given the pre-NAFTA trade surplus, all of those jobs have been lost or displaced since NAFTA. This estimate of 682,900 net jobs displaced takes into account the additional jobs created by exports to Mexico.

The report’s author, Robert Scott, claims it foreshadows job losses if Congress passes pending trade agreements with South Korea, Colombia, and Panama.

The EPI model has little relevance to the real American job market. As I’ve pointed out before (here and here), its model is based on an overly narrow view of trade’s impact on the job market. Yes, some people do lose their jobs because of import competition, no news there, but trade also creates jobs through increased exports. And even if we run a trade deficit with a country such as China or Mexico, jobs are also being created by the net inflow of foreign capital, which spurs domestic job creation through lower interest rates and direct investment. The money we save from lower-priced imports also liberates consumer dollars to fuel growth elsewhere in our economy, and cuts costs for import-consuming businesses, boosting their sales and employment.

Next, consider the EPI numbers on their face. Those alleged 682,900 net jobs lost came over a 16-year period. That’s a bit more than 40,000 jobs lost per year. That is a drop in the bucket in a dynamic economy like ours that creates and eliminates about 15 million jobs each year. Even when unemployment is low, 300,000 or more Americans file for unemployment insurance in a typical week. So even if true, the EPI job loss numbers amount to less than one day’s worth of job displacement for the whole year.

When we look at the actual job market performance since NAFTA was enacted, the irrelevance of the EPI model becomes plain. In the first five years after NAFTA’s passage, 1994-98, when we could have expected it to have the most impact, the U.S. economy ADDED a net 15 million new jobs, including 700,000 manufacturing jobs. In the 16 years since its passage, despite two recessions, our economy still employs 20 million more workers than it did the year before NAFTA passed. (Check out the employment tables in the latest Economic Report of the President.)

In my own April 2011 study of trade and the economy, “The Trade-Balance Creed,” I found that civilian employment in the past 30 years has actually grown quite a bit faster during periods of rising trade deficits compared to periods of declining deficits, just the opposite of what EPI’s distorted model would predict.

Will U.S. Finally Keep Its Word with Mexico on Cross-border Trucking?

President Obama and Mexican President Calderon announced this afternoon that the U.S. government will finally allow qualified, safety certified Mexican truckers to deliver goods in the United States, fulfilling a commitment our government made more than 17 years ago in the North American Free Trade Agreement. It’s about time.

America’s violation of the agreement had resulted in sanctions against $2.4 billion worth of U.S. exports to Mexico. According to one press report today,

The plan, announced at a news conference by the two presidents, will allow for half of those tariffs to be lifted immediately. It will establish a reciprocal, phased-in pilot program that allows Mexican trucks to operate inside the U.S. provided they comply with a series of safety and driver-skills and language tests monitored by the U.S. Department of Transportation.

Under the NAFTA agreement, the United States and Mexico agreed to allow trucks from each country to deliver goods to destinations inside the other country, provided the trucks met the same safety regulations that apply to domestic truckers. But under pressure from the Teamsters Union, President Clinton refused to implement the program during his presidency.

President George W. Bush, to his credit, tried to fulfill the U.S. obligation under NAFTA. His administration launched a pilot program in 2007, which allowed a limited number of Mexican trucking companies to deliver goods to U.S. destinations beyond the 25-mile commercial zone along the U.S.-Mexican border. Citing unsubstantiated safety concerns, and in the face of ongoing union pressure, a bipartisan majority in Congress voted to cut off funding for the program in 2009.

After years of patiently waiting for its northern neighbor to do the right thing, and after lawfully pursing its grievance through procedures set up by NAFTA, the Mexican government responded to the end of the pilot program by imposing punitive duties on $2.4 billion worth of U.S. exports to Mexico. The duties were strategically aimed at a range of politically sensitive products.

The safety issue was never a valid reason to suspend the program. As we’ve noted at the Center for Trade Policy Studies (time and time again), the NAFTA agreement requires Mexican trucks to meet every safety standard and then some that are imposed on U.S. trucks. Under the pilot program, Mexican trucks actually proved to have a better safety record than U.S. trucks.

Under the NAFTA agreement, President Obama has the authority he needs to bring the United States into full compliance. He should act quickly to bring this embarrassing and damaging episode to an end.