Did NAFTA raise U.S. incomes? Not for most

The normally-useful Wonkblog potentially leads some readers this past weekend to the wrong by pointing to a recent study on the effects of NAFTA and concluding:

“This is the pattern generally with trade liberalization. All else being equal, all parties tend to benefit, but developing countries benefit most.” [Emphasis added]

If by “parties” they mean “countries,” then this is roughly right. If by “parties” they mean “people,” then this is really wrong.

See here (and here if you really have some time to kill), but the rough story is simply that for the U.S., expansions of trade with poorer trading partners should be expected to raise national income while still lowering wages for most American workers. Even worse, the higher the national gains from trade, the larger the losses are for most American workers.

Lastly, it’s important to note that the vast majority of economic gains from an agreement like NAFTA for poor countries like Mexico could actually be obtained by Mexico unilaterally. That is, most gains come from countries reducing their own tariffs, not in gaining market access abroad. So, Mexico didn’t need NAFTA to achieve these gains—they could have had them on their own.