Are trade agreements good for the U.S. economy?
The Congressional Budget Office isn’t exactly offering a ringing endorsement of trade agreements like NAFTA.
Such pacts have “had relatively small positive effects” on American trade and its economy, according to a report from the federal agency, which analyzes economic and budget issues on behalf of lawmakers. The downside? Workers in industries facing tougher competition can end up out of work, sometimes permanently, CBO notes.
Trade agreements have become a lightning rod in the presidential election, with Republican candidate Donald Trump declaring that the 1994 North America Free Trade Agreement “has destroyed our country,” and suggesting that if elected he would either have the U.S. withdraw from the pact or renegotiate it. His antipathy toward trade deals is reverberating in parts of the country that have lost millions of manufacturing jobs, although to be sure not all of those job losses are casualties of trade deals.
“In the United States, trade-displaced workers tend to work in industries subject to more competition from imports (such as the textile industry), relatively less productive businesses, or occupations involving easily automated or routine tasks (such as data entry or customer service),” the CBO noted. “Those workers also are typically less educated, older or longer tenured at their previous positions.”
In Monday’s first debate between Trump and Democratic nominee Hillary Clinton, he pointed to Ohio as an example of an American state that’s been hurt by trade deals, losing “so many of their jobs.” (The Cincinnati Enquirer pointed out that while manufacturing jobs in Ohio have declined from 1 million in 2000 to 700,000 today, the economic reality of Ohio “is far more nuanced.”)
With polls showing heightened public concern about globalization, Clinton has also bucked the Obama administration and vowed to block the Trans-Pacific Partnership, a proposed trade deal that would link the U.S. with 11 Pacific Rim countries.
The trade picture projected by the CBO is also nuanced, given that the agency points out that export-oriented industries or highly skilled workers are helped by greater trade. Yet measuring the positive impact on job creation or higher wages isn’t easy to pin down.
“Researchers also have been unable to precisely estimate how many jobs have been created or how many workers have seen their wages rise as a result of international trade,” the report acknowledged.
It’s also difficult to estimate how many jobs have been lost due to trade agreements. A range of factors can result in the loss of manufacturing jobs, for instance, such as greater automation and productivity, which reduces the need for workers, or changing consumer tastes.
“In the United States, trade-displaced workers tend to work in industries subject to more competition from imports (such as the textile industry), relatively less productive businesses, or occupations involving easily automated or routine tasks (such as data entry or customer service),” the report said.
While those laid-off workers may find find other jobs, they usually can’t find the same pay they enjoyed in manufacturing.
One thing seems likely -- the manufacturing jobs aren’t likely to return to pre-NAFTA levels. New factories in the U.S. tend to rely more on automation, which means they don’t need as many workers as in past decades. U.S. manufacturing output has increased 20 percent since 2009, but manufacturing employment has inched up just 5 percent, according to Fivethirtyeight.com.
Yet there are some clear benefits to trade agreements, according to the CBO. For one, they tend to strengthen consumer purchasing power by lowering the cost of goods and services. NAFTA is credited with raising U.S. consumption by 0.4 percent from 1992 to 1998, the report noted.
“By lowering consumer prices (primarily through their effects on prices of imported goods) and increasing the productivity of workers (from greater competition), those agreements have probably increased average real wages for U.S. workers, albeit only slightly,” the report noted. “If that slight increase occurred, it would have induced more people to work, increasing the U.S. labor supply to a small degree.”