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Snapshot for December 10, 2003.

NAFTA-related job losses have piled up since 1993

Since the North American Free Trade Agreement (NAFTA) was signed in 1993, the rise in the U.S. trade deficit with Canada and Mexico through 2002 caused the displacement of production that supported 879,280 U.S. jobs. NAFTA is a free trade and investment agreement that provided investors with a unique set of guarantees designed to stimulate foreign direct investment in Mexico and Canada. It has facilitated the movement of factories from the United States to Canada and Mexico. Most of these jobs were high-wage positions in manufacturing industries.

Proponents of new trade agreements that build on NAFTA, such as the proposed Free Trade Agreement of the Americas (FTAA), have frequently claimed that such deals create jobs and raise incomes in the United States. These claims are based only on the positive effects of exports (known as “export effects”), ignoring the negative effects of imports (known as “import effects”). Such arguments are an attempt to hide the costs of new trade deals in order to boost the reported benefits.

The problem with these claims is that they misrepresent the real effects of trade on the U.S. economy: trade both creates and destroys jobs. Increases in U.S. exports tend to create jobs in this country, but increases in imports tend to reduce jobs by displacing goods that otherwise would have been made in the United States by domestic workers. Ignoring imports and counting only exports is like balancing a checkbook by counting only deposits but not withdrawals.

Between 1993 and 2002, NAFTA resulted in an increase in exports that created 794,194 jobs, but it displaced production that would have supported 1,673,454 jobs (see figure). Thus, the combined effect of changes in imports and exports as a result of NAFTA was a loss of 879,280 U.S. jobs. These NAFTA-related job losses suggest that U.S. workers have good reason to be concerned that the proposed Free Trade Agreement of the Americas will threaten jobs and communities.

This week’s Snapshot was written by EPI economist Robert E. Scott.

For a detailed analysis of how NAFTA has hurt the U.S. economy, see the EPI Briefing Paper, The High Price of ‘Free’ Trade.