The North American Free Trade Agreement's impact on United States employment has been the object of ongoing debate since the 1994 inception of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. NAFTA's proponents believe that more jobs are ultimately created in the USA. Opponents see the agreements as costly to well-paying American jobs.
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NAFTA's opponents attribute much of the displacement caused in the US labor market to the United States’ growing trade deficits with Mexico and Canada. According to the Economic Policy Institute, rise in the trade deficit with Mexico alone since NAFTA was enacted led to the net displacement of 682,900 U.S. jobs by 2010.[2] Critics see the argument of the proponents of NAFTA as being one-sided because they only take into consideration export-oriented job impact instead of looking at the trade balance, also known as net exports. They argue that increases in imports ultimately displaced the production of goods that would have been made domestically by workers within the United States.[3] Since NAFTA was enacted, U.S. manufacturing employment has fallen by 5 million jobs.[4]
The export-oriented argument is also critiqued because of the discrepancy between domestically produced exports and exports produced in foreign countries. For example, many US exports are simply being shipped to Mexican maquiladores where they are assembled, and then shipped back to the U.S. as final products.[3] These are not products destined for consumption by Mexicans, yet they made up 61% of exports in 2002. However, only domestically produced exports are the ones that support U.S. labor. Therefore, the measure of net impact of trade should be calculated using only domestically produced exports as an indicator of job creation.
According to the Economic Policy Institute’s study, 61% of the net job losses due to trade with Mexico under NAFTA, or 415,000 jobs, were relatively high paying manufacturing jobs.[2] Certain states with heavy emphasis on manufacturing industries like Michigan, Ohio, Pennsylvania, Indiana, and California were significantly affected by these job losses.[2] For example, in Ohio, Trade Adjustment Assistance and NAFTA-TAA identified 14,653 jobs directly lost due to NAFTA-related reasons like relocation of U.S. firms to Mexico.[5] Similarly, in Pennsylvania, Keystone Research Center attributed 150,000 job losses in the state to the rising U.S. trade deficit.[6] Since 1993, 38,325 of those job losses are directly related to trade with Mexico and Canada. Although many of these workers laid off due to NAFTA were reallocated to other sectors, the majority of workers were relocated to the service industry, where average wages are 4/5 to that of the manufacturing sector.[3]
Opponents also argue that the ability for firms to increase in capital mobility and flexibility has undermined the bargaining power of U.S. workers. In addition to enjoying lower tariffs for shipping goods from Mexico to the United States, multinational corporations also benefited from NAFTA’s unprecedented section giving multinational corporations the right to sue governments for infringement of “investment rights”.[7] According to the Economic Policy Institute, these investor protections facilitated the movement of manufacturing plants to Mexico.[8] Fifteen percent of employers in manufacturing, communication, and wholesale/distribution shut down or relocated plants due to union organizing drives since NAFTA’s implementation.[9] The weakening of rights for the American labor force is one example of the “race to the bottom” theory advocated by most opponents that will result from these trade policies.[3] Ultimately, workers are faced with the dilemma of settling for fewer worker’s rights because the firm will always have the ability to relocate to another country, notably Mexico, where they can attain cheaper labor and will face less resistance from workers.[3] However, it is now common that these incentives are enough to cost American laborers their jobs regardless of the status of the labor unions.[3]
U.S. employment increased over the period of 1993-2007 from 110.8 million people to 137.6 million people.[10] Specifically within NAFTA’s first five years of existence, 709,988 jobs (140,000 annually), were created domestically.[11] The mid to late nineties was a period of strong economic growth in the United States. Classical macroeconomic theory suggests that when a country is experiencing economic growth (i.e. GDP is increasing), then there will also be an increase in the participation of the labor force.[12] Thus, because trade liberalization can sometimes contribute to increases in GDP, it can help to bring the rate of unemployment down in a country. The U.S. experienced a 48% increase in real GDP from 1993-2005. The unemployment rate over this period was an average of only 5.1%, compared to 7.1% from 1982-1993, before NAFTA was implemented.[11] Critics on NAFTA argue that the 1990’s economic boom was driven by technological change, however, and that employment growth in the 1990’s would have been even greater without NAFTA.[13]
Proponents reject the claims of some that the free trade agreement is destroying the manufacturing industry and causing displacement of workers in that industry. The rate of job loss due to plant closings, a typical argument against NAFTA, showed little deviation from previous periods.[14] Also, US industrial production, in which manufacturing makes up 78%, saw an increase of 49% from 1993-2005. The period prior to NAFTA, 1982-1993, only saw a 28% increase.[11] In fact, according to NAM, National Association of Manufacturers, NAFTA has only been responsible for 10% of the manufactured goods trade deficit, something opponents criticize the agreement for exacerbating.[15] The growth of exports to Canada and Mexico accounted for a large proportion of total U.S. export gains.[16] However, the growth of exports to Canada and Mexico in percentage terms has lagged significantly behind the growth of exports to the rest of the world.[17]
According to the Democratic Leadership Council, “the most direct measurement of the impact of trade agreements on employment is the number of jobs supported by exports."[18] It is estimated that 8500 manufacturing jobs are supported by every $1 billion in US exports.[11] Because $12 billion of average annual gains in exports were created by expansion of North American trade, more than 100,000 additional US jobs were created, but this measure does not account for jobs lost due to rising imports.[11] More importantly, it has been noted that in export-oriented industries, wages are 13-16 percent higher than the national average.[11]
Others agree with the notion that there has been an increase in net jobs due to NAFTA’s implementation, but believe that these net gains are coming at the price of worker’s wages. That is, high-paying manufacturing jobs are being lost and replaced by lower paying jobs and is causing wage deflation in certain sectors. However, during the Clinton administration, the sources of new job creation were in relatively high paid sectors and industries.[19]