Canadian Prime Minister Justin Trudeau argued in a recent interview that the North American Free Trade Agreement (NAFTA) has been positive for jobs on both sides of the border.
“NAFTA’s been … improved a dozen times over the past 20 years,” he said in an interview with NBC News’ Tom Brokaw. “There’s always opportunities to talk about how we can make it better.”
“It has led to a lot of great jobs for a whole lot of people on both sides of the border and I very much take [US President Donald Trump] at his word when he talks about just making a few tweaks. Because that’s what we’re always happy to do,” he added.
Trump made the debate over free trade one of the central topics of his campaign. He once said NAFTA was “the worst trade deal in the history of the country,” and has on multiple occasions stated his intent to “renegotiate” the agreement.
Protectionism has grown more popular as American workers continue to worry about losing jobs to other countries. Only 46% of Americans said they thought NAFTA was good for the economy, according to Pew Research statistics cited by Bank of America Merrill Lynch’s Ethan Harris and Lisa Berlin in May.
There is some empirical evidence to back up those grievances. A 2016 study from economists Shushanik Hakobyan and John McLaren found mixed effects on the US labour force. Although for the average worker there wasn’t too much of a difference, a concentrated minority saw a significant decrease in wage growth that could be correlated with NAFTA. Blue-collar workers were more likely to be affected, college-educated workers were less so, and executives saw some benefits.
However, trade is not the only factor that has affected American jobs in general and the manufacturing sector in particular. The decline in American manufacturing employment predates NAFTA, which you can see in the annotated chart below. In other words, NAFTA alone is not responsible for the loss of US manufacturing jobs.
Additionally, it’s notable that a big drop-off in manufacturing jobs correlates with the economic shock of China joining the World Trade Organisation (WTO) in 2001. And, the steepest decline occurs after the financial and housing crisis in 2007-08.
Moreover, automation has also played a role. A couple of months back, Capital Economics’ Andrew Hunter shared a chart in a note to clients comparing manufacturing output (purple line) to manufacturing employment (black line).
Although manufacturing employment has been falling since the mid-1980s, manufacturing output has been increasing and is now near its pre-financial crisis high. In other words, firms have been able to increase output overall with fewer workers over the years, which is likely at least partially due to automation.
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