Part 2. NAFTA and manufacturing jobs

A SERIES ON NAFTA TURNING 25

 

One core question goes to the heart of whether trade agreements are “good” or “bad” for the United States: has NAFTA cost the US economy jobs?

Critics allege that NAFTA accelerated the decline of US manufacturing. It flooded the US market with imports while simultaneously allowing firms to move production south of the border. The net result was a loss of 4.5 million manufacturing jobs from 2000 to 2018.

In response, NAFTA’s defenders point out that manufacturing job losses are more than made up for by huge employment growth in other sectors.

What do the numbers say?

THE CASE AGAINST NAFTA

NAFTA resulted in 25 years of nearly uninterrupted trade growth. That meant a large upswing in imports flowing into the United States.

Mexico receives most of the attention. By 2017, imports from Mexico were 6 times larger than they were in 1994, having grown a total of 525%. By contrast, Canadian imports roughly doubled over the same period.

In addition, lower wages in Mexico are frequently blamed for the outsourcing of US jobs.

 

This steep, steady import growth provides ammunition for NAFTA’s critics. To them, cheap foreign goods make it hard for US to compete. Hence, job losses.

And there’s good cause for concern. Total employment in manufacturing has fallen close to 30% since 2000. That’s approximately 4.5 million jobs.

 
 

That downward trend is unmistakable.

But no one argues that manufacturing jobs haven't disappeared. The relevant question is: should we blame NAFTA?

DO IMPORTS COST JOBS?

The United States has lost jobs in nearly every major manufacturing category (3-digit NAICS) since NAFTA entered into force. Why?

If imports were the root cause, as we so often hear, then we should observe the largest job losses in industries that also do the most importing.

That’s not what we see.

The following table lists the ten industries that saw the largest import growth since 1994. On average, these industries lost 18 percent of their employees over the last 25 years. (Only the food industry saw modest growth.)

 
 

Notice, however, that 18 percent is well below the national average for the entire manufacturing sector (31 percent).

And, in terms of total jobs, the top 10 importers are responsible for only 1.81 million jobs of the total 4.53 million lost. The largest job losses were in industries that don't rank on this list.

 
 

It turns out there’s actually a weak negative correlation between import growth and job losses.

The largest job losses were in apparel & textiles (NAICS 315) and beverages & tobacco (NAICS 313). Employment in those two industries contracted by 86 percent and 76 percent, respectively. That’s over 1 million jobs. 

These industries did not see tremendous import growth. Their combined 188 percent growth is well behind the sector average of 525 percent.

Simply put, the industries doing the importing aren't losing the most jobs.

The graphs below scatter industries by the percentage of import growth and lost jobs from 1994-2017.

 
 

The data simply do not support the logic that NAFTA imports – from Mexico, in particular – are driving unemployment.

IF NOT NAFTA, THEN WHO'S TO BLAME?

What accounts for the unemployment?

First, a note about the data. It’s difficult to know precisely what portion of total job losses is related to any individual trade partner.

Mexico isn’t the only relevant economy. In fact, Mexico is actually America’s 5th largest source of textiles & apparel. Imports from across the Pacific presumably account for some of the job loss we observe.

Second, and perhaps most importantly, the debate over NAFTA often leaves out automation. There is survey evidence to suggest that workers are increasingly concernedabout the threat that new technologies pose for jobs. And for good reason. Most estimates suggest that automation will fundamentally restructure future production, displacing huge swaths of the labor market.

Trade from other countries and automation are both affecting the numbers reported above. But that’s all the more reason to think NAFTA isn’t the primary culprit.

A FINAL ASSESSMENT

Of course, the concern about jobs is not simply that they vanish, but that they move somewhere else in the world.

Unfortunately, it’s difficult to get precise data on outsourcing. Some reports look at trade adjustment assistance (TAA) applications, a government program available to displaced workers. However, that program is famously undersubscribed.

By way of an alternative, a widely cited report from EPI offered estimates of the job losses due to America’s trade deficit with Mexico to be 680,000 by 2010.  

However, the US Chamber of Commerce replied that the EPI report dramatically understates the jobs created since 1994 and those jobs reliant on NAFTA trade.

< READ CHAMBER REPORT HERE

And that’s the important point. At the same time US manufacturing lost around 4.5 million jobs, services in the United States gained 20 million.

Once we take those gains into account, it's difficult to say that the US economy is worse off. Especially with unemployment in 2018 at around 4 percent.

 
NAFTA at 25Jeffrey Kucik