Trade Myth 4:
The North American Free Trade Agreement (NAFTA) is a “disaster” and should be either repudiated or renegotiated. Tariffs should be imposed to stop companies like Ford and Carrier from building autos and air conditioners in Mexico intended for the U.S. market. (This is Donald Trump’s long-standing argument, which echoes Ross Perot’s opposition to NAFTA 25 years ago.) Bernie Sanders argues “NAFTA cost us 800,000 jobs nationwide.”
Mexico is the United States’ third largest trade partner (after Canada and China). In 2015 the U.S. exported $267 in goods and services and imported $316 billion, for a trade deficit of $49 billion. Because Mexican factories serve as an assembly focus for North American products, as much as 40% of the value of Mexican exports to the United States is originally of U.S. origin. However, because U.S. law attributes the country of origin to the country where the last significant manufacturing operation takes place, components and services of U.S. and Canadian origin, as well as components and services from Japan, Germany, many other third countries, are recorded as being of Mexican origin. Thus the country of origin law gives a misleading picture of the trade balance between the U.S. and Mexico.
Overall, NAFTA has benefitted the U.S. economy by reducing consumer prices, increasing production efficiencies, and creating jobs in export oriented industries and the service sectors. Employment losses to Mexico in relatively low technology assembly industries reflect employment losses that would have taken place in any event because of automation or relocation of production to lower labor cost venues such as China. A recent study by the OECD concluded that net employment effects of NAFTA were relatively small, although employment was lost in some sectors. Bernie Sanders’ claim of a loss of 800,000 jobs is unsubstantiated.