In the runup to Ohio’s Democratic primary, Presidential candidates Hillary Clinton and Barack Obama have zeroed in on expanded trade with Canada and Mexico as the cause of tough economic times in Ohio. Both candidates have pledged to dissolve the North American Free Trade Agreement unless Canada and Mexico adopt labor and environmental standards more in line with those of the United States.
A variety of comment has zeroed in on what’s wrong with the picture painted by Obama/Clinton.
At Cato@Liberty, Dan Griswold comments on the idea of trying to “harmonize” environmental and labor standards with Canada and Mexico:
Talk about a non-starter. It is unlikely that our two neighbors would agree to reopen a 14-year-old agreement that has worked well for all three nations. … In effect, Obama and Clinton will be asking our two neighbors to bend their national labor and environmental standards to the demands of the U.S. Congress under threat of trade sanctions. Where exactly is the upside for Canada and Mexico in such a request?
Of course, there is no upside. So the only motivation will be the threat that the United States will unilaterally withdraw from NAFTA. …
The Democratic candidates have been critical of the Bush administration for its checkered record of winning friends abroad. But have the Clinton and Obama campaigns considered how our friends in Canada and Mexico will react to the heavy-handed demand that they re-write their domestic labor and environmental laws under threat of face tariff retaliation from Uncle Sam?
At The Weekly Standard, Matthew Continetti notes the diplomatic benefits of free trade:
Prior to NAFTA Mexico was a political and economic basketcase. It had widespread political instability and a history of nationalizing industries. Today, in nominal terms, Mexico’s GDP is about twice what it was when NAFTA came into being. Mexico’s inflation rate is lower than our own. The (still high) poverty rate has fallen. Mexico was spared the worst effects of the 1998 international monetary crisis. Mexicans have broken the PRI’s stranglehold on political power and elected two pro-American reformers to the presidency. Democrats like Obama say they want to emphasize America’s influence via “soft power” rather than the projection of military force. Is there a surer way to improve our ideological and cultural appeal than through free trade with our neighbors?
A number of writers have observed that NAFTA has nothing to do with the long-term loss of manufacturing jobs, and that overall trade has been a good deal for U.S. workers.
Dan Griswold, Wall Street Journal:
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.
But the number that best displays the nonsensical nature of the debate is 66% — the increase in the manufacturing output of American industry since 1993.
It’s impossible to look at an economy that has increased its manufacturing output so dramatically while simultaneously cutting its manufacturing workforce and not see a much larger force at work than NAFTA.
That force has been the unprecedented and sweeping gains in worker productivity that have allowed U.S. companies to churn out more goods with fewer people. Some of this has come from outsourcing the most labor-intensive parts of manufacturing, particularly to Asia. But much of it is from the use of more automated systems for assembly lines and high-tech inventory management.
Steve Chapman, Reason:
According to data compiled by Harvard economist Robert Z. Lawrence, the average blue-collar worker’s wages and benefits, adjusted for inflation, have risen by 11 percent under NAFTA. Instead of driving pay scales down, it appears to have pulled them up.
Manufacturing employment has declined, but not because we’re producing less: Manufacturing output has not only expanded, but has expanded far faster than it did in the decade before NAFTA. The problem is that as productivity rises, we can make more stuff with fewer people. That’s not a bad thing. In fact, it’s essentially the definition of economic progress.
Cato’s Dan Ikenson, (Fort-Worth) Star Telegram:
Since 1993 (the year before NAFTA), the size of the U.S. economy has grown by 54 percent in real terms; 27 million net new jobs have been created, worker productivity has increased by 39 percent, and real compensation has increased by 23 percent. This economic expansion occurred as U.S. imports increased from $589 billion in 1993 to $1.9 trillion in 2007.
Comparing Texas, another state with a primary tomorrow, to Ohio, The Wall Street Journal’s editors observe that low taxes and flexible labor laws, not trade barriers, are the real key to economic growth and job creation:
Mr. Obama’s claim of one million lost jobs due to trade deals is laughable in Texas, the state most affected by Nafta. Texas has gained 36,000 manufacturing jobs since 2004 and has ranked as the nation’s top exporting state for six years in a row. Its $168 billion of exports in 2007 translate into tens of thousands of jobs. …
Ohio now ranks 47th out of 50 in economic competitiveness, according to the American Legislative Exchange Council. Ohio politicians deplore plant closings even as they impose the third highest corporate income tax in the country (10.5%) and the sixth highest personal income tax (8.87%). …
States with “right to work” laws that make union organizing more difficult had twice the job growth of Ohio and other forced union states from 1995-2005, according to the National Institute for Labor Relations.
On the other hand, Texas is a right to work state and has been adding jobs by the tens of thousands. Nearly 1,000 new plants have been built in Texas since 2005, from the likes of Microsoft, Samsung and Fujitsu. Foreign-owned companies supplied the state with 345,000 jobs. No wonder Texans don’t fear global competition the way some Presidential candidates do.
In a paper for The Heritage Foundation last November, Terry Miller also took issue with the gloom-and-doom storyline that was developing on the campaign trail. He commented:
One of the biggest mistakes of trade opponents is thinking of the global economy in static terms: Jobs lost in the United States must mean jobs gained elsewhere. This representation of trade as a zero sum game is simply not accurate. The U.S. and world economies are dynamic things, growing and evolving daily. Rapid technological advances are driving down the cost in labor of manufacturing around the world. To resist this trend by adopting protectionist measures that subsidize less efficient producers is to buy into a world vision of lower productivity and slower growth, a poorer world in which everyone has less and produces less than they otherwise could.