One Million Jobs Lost to NAFTA

From my forthcoming policy brief for the Institute for Social Policy and Understanding.

Barack Obama recently claimed that NAFTA has cost America 1 million jobs[i]. Although the accuracy of this claim has been disputed,[ii] let’s take it at face value, and consider what it means. With more than 146 million jobs in the U.S. economy, 1 million jobs would be approximately 2/3 of 1 percent of all jobs. In April 2008 the unemployment rate was 5%, with roughly 7 million people unemployed out. Another 1 million unemployed would increase the unemployment rate to around 5.7%—still below the last 30 years’ average unemployment rate of 6.1%. But even that is an exaggeration, because that assumes all 1 million jobs were lost in one year. Instead, the 1 million jobs would be spread across the past 14 years, which works out to an average of less than 72,000 jobs per year, or less than 5/100ths of 1% of the U.S. job market. And those 72,000 jobs per year that are alleged to have been destroyed by NAFTA must be set against the net increase of 1.75 million jobs per year since 1994, when NAFTA went into effect. If 1,000,000 jobs have indeed been lost to NAFTA—and again it’s worth pointing out that the claim has been disputed and is, frankly, quite dubious—the negative impact on the U.S. is at best, very small.

The conclusion is, even as the supply of labor has increased by nearly half (since 1980), the percentage of unemployed workers has declined.

[i] Tapper, Jake. 2008. http“Obama Knocks Clinton, But Wouldn’t Ax NAFTA.” ABC News. Feb. 24.
[ii] Robertson, Lori. 2008. “More NAFTA Nonsense.” Annenberg Political Fact Check. March 3.

Why I Can’t Vote for Obama, Part I: Economic Policy

The 5 voters in my “Who should James vote for” poll (or the 1 person who voted 5 times), say I should vote for Barack Obama. But the more I think about him, the more I realize I just can’t. Barack Obama wants change. So do I. But in the past week, both a white man from Iowa, and a black woman from Florida have asked me, “Change what?” And I don’t want the changes Obama does. So here’s part I, Obama on trade policy. Tomorrow, Obama on foreign policy.

Obama has been careful not to explicitly say he’s anti-free trade. Only Dennis Kucinich is foolish enough to say so openly. Obama recently said,

“Revolutions in communication and technology have made it easier for companies to send jobs wherever labor is cheapest, and that’s something that cannot be reversed… So I’m not going to stand here and say that we can stop every job from going overseas.  I don’t believe that we can — or should — stop free trade.”

But his website says

"Obama will fight for a trade policy that opens up foreign markets to support good American jobs. He will use trade agreements to spread good labor and environmental standards around the world and stand firm against agreements like the Central American Free Trade Agreement that fail to live up to those important benchmarks. .. Obama believes that NAFTA and its potential were oversold to the American people. Obama will work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers."

And in a recent speech, he said,

"…trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage at Wal-Mart."  (Thank you Greg Mankiw.)

Here in Michigan, the only state to have a declining gross state product in 2006, free trade seems a hard sell. But let’s look at the figures.

Michigan’s gross state product in 2006, was $337.8 billion (in chained 2000 dollars).

• Michigan’s exports in 2006 were $40.4 billion (in 2006 dollars). See also U.S. Census Bureau. 

• Michigan is 5th, or 6th (click link above) out of the 50 states in total dollar value of exports. . See either the first link in the previous item, or here, or here.

• The Democratic Leadership Council says:

  Michigan ranks ninth in the nation in the number of workers hired by foreign companies, hosting 1,000 companies from more than 20 countries which support more than 205,000 jobs -- about one in every 15 of Michigan's private-sector jobs, and an especially high proportion of manufacturing jobs.

• Michigan’s top two export targets are Canada and Mexico (scroll down to table two in the link), the two countries who are our partners in NAFTA. My state exports over $38 billion (in 2006 dollars) to Canada, and nearly $5 billion to Mexico. Third on the list is Germany, at a measly $1 billion. So what do you think screwing with NAFTA would do to Michigan’s economy? 

If you dig into the first table in the prior link, you’ll find some fascinating data. Look at item 14: Michigan exported $376 million in rear-view mirrors for vehicles! And nearly $1 billion in gearboxes! Let’s limit our trade with Canada and Mexico, because the U.S. market is going to soak up an extra billion dollars worth of gearboxes?

Because if we don’t import, which we do buy sending other countries money, they won’t have any money to send us, so we won’t be able to export.

But, you might argue, our manufacturing sector has declined. It's true that (a) manufacturing employment has declined, and (b) that the proportion of the GDP coming from manufacturing has declined. But manufacturing has continued to grow, with greater output than before (with fewer workers, because of productivity increases). In 2001, manufacturing was about $4.1 trillion dollars, and after dipping because of recession from '01 through '03, grew to $4.9 trillion in 2006.

If we look specifically at auto industry employment, which is of greatest concern to Michigan, overall employment has fallen, but due almost wholly to the poor performance of GM and Ford. If we look at the foreign-based manufacturers, their US employment has increased by over 50% since 1995. And it is possible to make money as an automaker in the US, and even through foreign sales.

"Toyota, on track to overtake General Motors as the world's biggest automaker this year, said Friday its April-June profit jumped 32.3% to a record high for a quarter, lifted by strong overseas sales and a weaker yen. (USA Today)

Obama needs to read two books, at least, on economics. And here’s the two I’d recommend, for him or anyone. Bastiat’s Economic Sophisms (AKA Fallacies of Protection), which can also be read online, and Russels Robert’s The Choice: A Parable of Free Trade and ProtectionConvince me Barack Obama supports free trade, and I’ll be one step closer to supporting him.