Renegotiating, or scrapping the North American Free Trade Agreement (NAFTA) is a central component of Donald Trump’s economic policy.
During the campaign, he called it the “worst trade deal ever signed” by any nation.
In truth, NAFTA’s been a disaster for America’s workers, and economy as a whole: it should be scrapped.
1. NAFTA Costs America Jobs
NAFTA costs America jobs. Lots of them.
In fact, a net 700,000 jobs are displaced by Mexican imports.
We know this by looking at the balance of trade between the US and Mexico. Right now, we’re running a giant, $63 billion a year trade deficit with Mexico.
This means that we’re importing more from them than they’re buying from us. This boosts demand for Mexican goods (and therefore workers), while lowering the relative demand for American goods (and workers).
In the end, there are fewer American jobs, and more Mexican jobs.
But even if the trade were balanced, American workers would still get hurt.
This is because of asymmetries between America’s and Mexico’s labor market. Basically, America is relatively expensive, while Mexico is cheap.
Therefore, industries that are labor-intensive (and therefore can save a lot of money by moving to Mexico) are the first to be offshored, while the capital-intensive industries generally stay put.
All told, many more people will lose jobs than gain them.
The detriment to American workers alone is reason enough for Trump to scrap NAFTA.
2. NAFTA Lowers Wages For US Workers
There’s more to a sound economic policy than maximizing efficiency: we also have to look at its human and social impact.
Although people quibble about whether or not NAFTA benefited America’s economic growth, there’s no question that more people lost their jobs than gained them. Let’s look at what happened to them.
Many got new jobs, sure—but these new jobs were generally in lower-paying service positions.
Not only that, but those workers are now competing with everyone else for those jobs: as the labor pool expands, there are more people chasing fewer jobs. This shifts the bargaining power away from employees to employers, and therefore lowers wages.
Think of it like this: how likely are you to get a raise if your boss can threaten to move the factory to Mexico? Not very likely.
In fact, if we look at overall US wages, we find that wages have stagnated in real terms since 1973, when economic globalization (this includes offshoring, and mass immigration) began—that’s why the middle class is declining.
NAFTA is a drop in the bucket when it comes to trade with China, but its impact has been the same: foreign competition lowers wages for American workers.
Even if NAFTA increases our GDP it’s not worth it, since all of those gains go to the top. For most Americans, life gets harder.
3. NAFTA’s Caused Bigger Government
Offshoring, due to freer trade with asymmetrical markets, has cost millions of Americans their jobs.
In fact, the unemployment rate has been growing steadily for decades, especially since 1994 (when NAFTA was signed) and 2001 (when China joined the WTO).
Right now, 23 million Americans are unemployed—much higher than what the government claims.
Bad trade deals, like NAFTA, are the primary reason.
Unemployed people collect government welfare, be it subsidized housing, food stamps, or welfare checks—many collect disability (even though they’re not disabled) etc.
A man needs to eat, and when the government takes the bread from his mouth by allowing America’s industries to be offshored to Mexico via NAFTA, he doesn’t really have a choice but to go on the dole.
This is why offshoring leads to big government.
And what does big government lead to? Higher taxes.
The people who “benefit” from offshoring end up paying higher taxes to care for the millions of displaced workers.
So are the goods really that much cheaper? No.
In total, some 10 million Americans have lost their jobs due to offshoring (and 700,000 are directly due to NAFTA).
All in all, this isn’t good for anyone. The government should focus on getting people working, rather than cleaning up globalization’s damage.
This is perhaps the most compelling reason for withdrawing from NAFTA.
America Should Leave NAFTA
President Donald Trump’s been making good on his word to pull America out of bad trade deals.
First he scrapped TPP, which would’ve been the worst one yet, and now he’s on the verge of withdrawing the US from NAFTA.
He should do it—and while he’s at it, he should withdraw from the Trade in Services Agreement (TiSA) too.
Economic globalization isn’t always a good thing, no matter what “economists” claim.
It’s time we put America first.