While NAFTA allowed to lower costs, increase productivity, and improve U.S. overall competitiveness, some critics argue that NAFTA is to blame for job losses and wage stagnation in the U.S., because competition from Mexican companies forced many U.S. firms to relocate to Mexico. Also, most studies agree that NAFTA only had a modest positive impact on the U.S. GDP.
nafta job loss
Ohio experienced an estimated net loss of 750,000 good-paying manufacturing jobs between 1969 and 2009.1 Why did that happen, and what were the consequences for middle-class households and communities across the state? Policymakers seeking to build broad-based support for their trade agenda must grapple with this question.
That said, it would be a serious mistake to minimize the impact of the trade-related manufacturing job losses. Everyone who lost a job due to outsourcing, offshoring, or import competition had family, neighbors, and local shops dependent on their businesses. Entire communities were devastated. Several hundred thousand Ohioans were directly or indirectly affected. And for many of them, this was not just about the loss of employment, but also the gradual unraveling of a de facto social contract that once existed between government, business, labor, and communities.
After granting China the status, U.S. firms decided it was worth the sunk costs and risks to shift some production to China, where there were lower long-term labor costs.31 Simultaneously, Chinese producers decided they could afford to rapidly expand into U.S. markets. And upon recognizing that China was entering a phase of comparative advantage with reduced labor costs, U.S. firms then accelerated domestic investments in automation and other technological enhancements to better compete. This trifecta precipitated a major net reduction in U.S. manufacturing jobs, disproportionately borne by manufacturing states like Ohio. The losses considerably offset the export-related jobs created in the United States as a result of increased market access in China.
For manufacturing industries like those in Ohio, robotics is one of the main technologies that has displaced good-paying jobs.40 According to the Robotic Industries Association, the automotive industry is the primary driver of growth in robotics, with plastics and rubber, semiconductors, electronics, and metals also showing significant growth.41 Thus, the major industries concentrated in Ohio are among those most exposed to automation and related job losses.
The increasing trade deficit has translated into job losses in agriculture. Agricultural employment in Mexico actually increased somewhat in the late 1980s and early 1990s, employing 8.1 million Mexicans at the end of 1993, just before NAFTA came into force. Employment in the sector then began a downward trend, with 6.8 million employed at the end of 2002, a loss of 1.3 million jobs.[12] While not all of that reduction can be attributed to NAFTA, other forces that affected trade, such as the sharp devaluation of the peso during 1994-1995, pushed in the opposite direction, toward greater growth of Mexican exports over imports. In fact, 1995 was the one post-NAFTA year in which Mexico had a surplus in its agricultural trade with the United States, and agricultural employment did improve modestly for a short period thereafter. However, once the peso stabilized, the agricultural trade balance again turned against Mexico and agricultural employment resumed its decline. During this period, Mexico was also liberalizing trade with other partners, so the entire impact cannot be ascribed to NAFTA. But the WTO has determined that Mexico reduced its agricultural tariffs much more for the United States than for other trading partners.[13] Thus, agricultural trade liberalization linked to NAFTA is the single most significant factor in the loss of agricultural jobs in Mexico (see Figure 3).
The release of labor from the agricultural sector largely offset the employment gains in the export-manufacturing sector that occurred after NAFTA took effect. As noted earlier, it is impossible to establish precisely what proportion of the gain in export manufacturing jobs and the loss in agricultural jobs between 1994 and 2002 was directly attributable to NAFTA. However, it is clear that the sum of the effects of the trade pact to date has not been a strong net gain in overall employment and may have been a small net loss of jobs for Mexico. Further, the long-term effects are still uncertain, as most manufacturing tariffs have now been eliminated, while the most sensitive agricultural tariffs have yet to come down.
Balanced trade, or when the value of imports and exports of goods are around the same, should have small effects on manufacturing employment. This was the case for the combined years from 1960 to 1983. Nevertheless, many people blamed imports, such as Japanese cars, for leading to job losses in manufacturing. Employment due to exports was ignored as people focused on the closing of manufacturing firms and on imports taking market share away from U.S. companies. The pressure was high enough that foreign automobile companies opened production facilities in the United States and provided jobs that the anti-trade critics were trying to create. While these facilities were not unionized, their pay and benefits were close to United Auto Workers contracts. These firms wanted the flexibility to make changes without the burden of union agreement.
When imports are consistently greater than exports by a significant amount, then international trade leads to manufacturing job losses. This was the case from 1999 to 2019, when the deficit reached a maximum of 5.6 percent of GDP but never dipped below 2.7 percent of GDP.
The effects of U.S. positive foreign investment and positive net investment income are not clear. On the one hand, extra capital could lead to lower interest rates, which could lead to more company investment. On the other hand, this is not a large amount, and savings and investment decisions may not be affected by this inflow. This analysis assumes that these positive flows will have no positive effect on manufacturing employment. Consequently, manufacturing employment losses due to trade are only determined by changes in imports and exports.
Using the above methodology, this study finds that 8.9 million manufacturing workers were displaced by imports from 1991 to 2019 and that 5.4 million workers were needed to produce the growing exports. The net effect of trade saw a loss of 3.5 million workers. Other researchers using different techniques and different time periods report similar results.
A previous paper defined a relative standard of good pay as yearly earnings greater than the 40th percentile level of all male workers ($45,000 in 2019). In 1960, 56 percent of non-college-educated blue-collar manufacturing workers met this standard. By 2019, this share dropped to 42 percent. This is an indicator of some loss in relative standing. But a much bigger economic pie means that a smaller slice leads to a substantial gain in blue-collar living conditions even though workers higher up on the earnings ladder had bigger gains. The gain is larger if the increase in benefits is included. The gain here is mostly the higher cost of health insurance, but the United States has gotten a payoff for this extra spending in that life expectancy increased 4.7 years from 1979 to 2018 (the last year of available data). Of course, some of these gains have been wiped out because of the Covid-19 pandemic.
A second consequence of the advancement in productivity involves what Americans consume (Figure 5). Productivity gains are highest in the production of goods. Consequently, the categories with the largest declines are food (down 13 percentage points), clothing (down 6 points), personal and household goods (down 4 points), and transportation (down 3 points). The biggest areas of gain were health and education (up 16.5 percentage points), recreation, and finance and personal business services (up 5 points). The decline in goods consumption shows that manufacturing productivity is high enough to meet the demand for goods of consumers with 8 percent of the labor force. In 1960, nonmanufacturing industries required 20 percent of the labor force to meet consumer needs. Consequently, the net loss of 3.5 million jobs due to trade represents a small share of the additional 18 million manufacturing jobs that would have existed if the manufacturing employment share of the labor force remained at its 1960 level.
The import problem is that anti-trader perspectives have focused on the several million jobs lost by manufacturing firms. As shown above, this is a small number, and the involuntary separations of American-based companies dwarf the negative effect of trade. The bottom line is that almost the entire decline from 32 percent of the labor force in 1955 to 8 percent in 2019 was not caused by imports but by higher productivity. This is a worldwide phenomenon, as even Germany and other countries with positive trade balances also had their shares of manufacturing employment suffer comparable declines. Job losses in Europe have been less contentious because European governments generally provide greater income and training support for displaced workers.
It's the U.S. manufacturing sector that has suffered most mightily from NAFTA, alone accounting for 60.8 percent -- 415,000 total -- of the jobs lost to the agreement. Specifically, those making computer of electronic parts have accounted for 22 percent of all job losses, and motor vehicle and parts workers accounted for 15 percent of job losses.
Job losses haven't been limited to certain geographic regions, either, as all fifty states have lost jobs as a result. And while the states with the largest total number of job losses, California and Texas, do hug the southern border, it's actually manufacturing-heavy states to the north, such as Michigan, Indiana and Kentucky, that have lost the largest share of jobs to Mexico. 2ff7e9595c
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