Ohio Needs More Foreign Trade

March 1, 2008 • Commentary
This article appeared in The Wall Street Journal on March 1, 2008.

In a bid to woo blue‐​collar voters in Ohio before Tuesday’s presidential primary, Barack Obama and Hillary Clinton trashed free trade during their debate this week in Cleveland.

Sen. Clinton denounced the North American Free Trade Agreement (Nafta) as “flawed” and blamed it for closing factories in Ohio and upstate New York. Sen. Obama claimed that “if you travel through Youngstown and you travel through communities in my home state of Illinois, you will see entire cities that have been devastated as a consequence of trade agreements.” Both pledged to withdraw the U.S. from Nafta if Canada and Mexico refuse to add “enforceable” labor and environmental standards.

But tinkering with a 14‐​year‐​old trade agreement will not bring an industrial renaissance to Youngstown and other Rust Belt cites. The relative decline of those regions dates back to the 1960s and 1970s, when the American economy began a transition from heavy industry toward an information‐​based service economy.

Ohio workers would pay a heavy price for pulling out of Nafta. Canada and Mexico are the top two markets for exports from Ohio, accounting for more than half of the state’s exports in 2006. According to the Ohio Department of Development, 283,500 workers in the state earn their living in the export sector, with machinery, car parts, aircraft engines and optical/​medical equipment among the leading exports. A trade showdown would put those good‐​paying jobs at risk.

Since Nafta took effect on Jan. 1, 1994, the U.S. economy has added a net 26 million new jobs. The average real hourly compensation (wages and benefits) of workers has climbed 23%. Real median household net worth has increased by a third. Of course, Nafta was not the primary driver of all that good news. But it is a useful counterpoint to the sense that large numbers of Americans have been “devastated” by Nafta and other trade agreements.

In recent years, U.S. manufacturers have enjoyed record output, revenue, exports and profits. Since Nafta, U.S. manufacturing investment in Mexico has averaged a modest $2 billion a year — a tiny fraction of the $150 billion or more those same companies invest annually in domestic manufacturing capacity. American factories actually added a net half‐​million new manufacturing jobs in the five years after Nafta.

The loss of manufacturing jobs in Ohio and elsewhere since 2000 is the result of increased automation and our own domestic slowdown. U.S. factories are producing more and better stuff with fewer workers because their workers have become so much more productive.

Behind this trend has been a shift of production down South to nonunion, right‐​to‐​work states, and up the value chain to more technology‐​intensive products. After 15 years of expanding trade, U.S. factories today are producing fewer shirts, shoes and lower‐​end auto‐​parts, and more pharmaceuticals, chemicals, semiconductors and sophisticated machinery and equipment.

Despite the rhetoric during the original debate, Nafta was never going to have, and hasn’t had, a major impact on the U.S. economy. American GDP dwarfs that of Mexico, and our tariffs on imports from Mexico were already low to zero. The real payoff has been stronger commercial and diplomatic ties with our southern neighbor.

Nafta institutionalized Mexico’s transition from a closed, one‐​party state to a more hopeful, multiparty democracy more oriented to the U.S. As a result, the Mexican economy has been growing steadily. Poverty and crime rates are falling. Mexico’s remaining problems stem from lingering corruption and entrenched monopolies that dominate energy, telecommunications, education and other important sectors.

The irony of the present Democratic cat fight over free trade is that the Nafta agreement was a policy triumph of the Clinton administration. President Bill Clinton and Vice President Al Gore fought hard and successfully for the agreement, which passed Congress in November 1993 with the support of 102 Democrats in the House. Hillary Clinton boasts about the robust U.S. economy of the 1990s as evidence of sound economic stewardship — yet she and Mr. Obama now reject the very free‐​trade policies that were an integral part of that record.

Democratic opposition to Nafta and free trade is not driven by any real facts on the ground, but by special interest politics. Lead by the Teamsters and the AFL-CIO, organized labor blames trade for declining membership. This is misleading at best. The share of American workers belonging to unions has been eroding steadily since the 1950s.

Backtracking on Nafta and other trade agreements will not restore a previous era of glory to organized labor or Youngstown, Ohio. It will only slow America’s own economic progress while unnecessarily alienating our closest neighbors.

About the Author
Daniel Griswold
Former Director, Herbert A. Stiefel Center for Trade Policy Studies