Throughout the presidential election both major candidates have sharply criticized trade agreements. Donald Trump says the North American Free Trade Agreement, an arrangement that allows greater trade between the United States, Mexico and Canada, is the worst trade deal maybe ever signed anywhere. Hillary Clinton has wavered from her former stance in favor of trade, promising to stop any trade deal that kills jobs or holds down wages.
Unfortunately for us all, both candidates miss the mark on trade and fail Economics 101.
When breaking down the positives and negatives of NAFTA, we find a very different story from the ones told by Clinton and Trump. Its true that during the first decade of NAFTA some sectors saw job losses between 60,000 and 190,000. At the high end, this means some 1.9 million jobs left the United States, which sounds disastrous until you consider the 34 million jobs created in the U.S. during the same period as a result of NAFTA.
As for trade agreements hold[ing] down of wages, this is little more than political rhetoric. Experts on NAFTA find little difference in U.S. wage rates between industries with a large volume of imports from Mexico and those with a small volume. Economists with the National Bureau for Economic Research found that NAFTA actually increased wages in the United States.
Its easy to blame foreign trade for a variety of economic problems. When running for office, its unwise to ignore the outcries of 1,400 workers who recently lost their jobs when their company decided to move its manufacturing facility to Mexico.
But its foolish, if not detrimental, to focus only on whats easy to see.
Besides the millions of jobs created by NAFTA, consider that increased trade over the last four decades has led to a 14 percent decrease in the cost of clothing, food, electronics and other home goods. In 1974, nearly 34 percent of the average American familys budget went to these items. Today, as a direct result of more free trade, those same items require only 20 percent of a familys incomethats about $8,156 per year that families can use for other purposes.
Economists have found that families earning less than $35,000 per year benefit significantly more than wealthier families from free-trade policies. Poorer families tend to spend more of their income on consumption goods. Moreover, the goods they consume are more likely to be subjected to tariffs than more-expensive goods.
Abandoning or restructuring trade deals like NAFTA would hurt Americans in other ways. Some 6 million U.S. jobs are tied directly to industries in Mexico. If NAFTA goes, those jobs go with it.
Other U.S. companies will also feel the hurt. For every dollar spent on Mexican imports, 40 cents go to U.S. firms that create inputs for those goods.
By the way, for Chinese imports, which also worry Trump and Clinton, 55 cents of every dollar go to American firms and, ultimately, American workers.
Foreign governments, foreign businesses and foreign workers are easy scapegoats for politicians looking to dodge tough questions about job creation and wages. Unfortunately, disdain for trade only encourages support for policies that would prevent an increase in wealth and job creation.
Economics teaches us that trade is beneficial for everyone. Whether youre rich or poor, live in a wealthy country or a developing nation, trade makes people better off. It allows people and countries to figure out what they do best and exposes people to new ideas. When goods, services and ideas cross borders, everyone wins.
Its more than unfortunate that neither major candidate appreciates the benefits that trade provides to all parties involved, including U.S. firms and workers. If Trump or Clinton were truly serious about job creation and reducing the cost of goods and services for American families, theyd be championing more trade, not less.