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Broken promises: NAFTA cost U.S. jobs and reduced wages

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Snapshot for October 4, 2006.

Broken promises

NAFTA cost U.S. jobs and reduced wages

By Robert E. Scott

Corporations, politicians, and economists repeatedly claimed in the early 1990s that the North American Free Trade Agreement (NAFTA) would improve the U.S. trade balance with Mexico and Canada, resulting in a net gain of about 200,000 jobs in the United States.  The reality is that the U.S.-NAFTA trade deficit has soared over the past dozen years, displacing a total of 1 million jobs nationwide, with losses in every state (see Revisiting NAFTA).  Simply put, NAFTA has failed to achieve the benchmarks for success established by its proponents.  Nonetheless, many of the original NAFTA supporters as well as members of the Bush Administration and Congress have made similar claims and promises about the purported benefits of other recent trade deals, such as the Central American-Dominican Republic Free Trade Agreement and the proposed agreements with Peru, Korea, and Colombia. 

For a better understanding of the situation, it helps to review some basics. Exports support jobs in the United States, while imports displace domestic production and jobs.  In 2004, U.S. imports from Mexico and Canada were $412 billion, while U.S. exports were only $300 billion, leaving a $112 billion trade deficit (nominal dollars).  By comparison, the U.S. trade deficit with Canada and Mexico was only $9 billion in 1993; the increase in that trade deficit through 2004 is what is responsible for displacing 1 million jobs nationwide.

Two of the biggest job losers were California (-124,000 jobs) and Texas (-72,000), as shown in the chart below.  In terms of the share of a state’s workforce that was affected, those hardest hit were Michigan (-1.4% of its workforce, or -63,000 jobs), Indiana (-1.2%, or -35,000 jobs), and Mississippi (-1.0%, or -12,000 jobs). 

NAFTA costs jobs in every state

Trade-related jobs that were displaced in manufacturing and related services industries paid wages that were 16% to 19% higher than the average job in the rest of the economy.  Growing trade deficits with Mexico and Canada have pushed workers out of higher-wage jobs and into low-wage positions in non-trade-related industries.  The displacement of 1 million jobs from traded into non-traded goods industries reduced wage payments to U.S. workers by $7.6 billion in 2004 alone.

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