https://www.aei.org/publication/trade-and-trump/?utm_source=twitter&utm_medium=social&utm_campaign=fdpaeideasTrade and TrumpDerek Scissors
April 27, 2016
Donald Trump just gave a wide-ranging speech, and it’s not fair to pick on a few sentences. But I’ll do it anyway, because a lot of people believe what Mr. Trump said and they’re at least partly wrong.
Mr. Trump: “NAFTA, as an example, has been a total disaster for the United States and has emptied our states — literally emptied our states of our manufacturing and our jobs.”
The North American Free Trade Agreement went into force January 1, 1994. According to the Bureau of Labor Statistics, these were the numbers for the end of December 1993:
Manufacturing employment: 16.8 million
Labor force participation rate: 66.4%
Unemployment rate: 6.5%
These were the numbers for the end of December 2000:
Manufacturing employment: 17.2 million
Labor force participation rate: 67.0%
Unemployment rate: 3.9%
After seven years of NAFTA, fewer people were unemployed, there were more people in the labor force, and there were more people employed in manufacturing.
Was there a huge, delayed impact from NAFTA? Highly unlikely. Something happened in 2001 that was much more important than NAFTA, year 8. The 2000 elections confirmed the US agreed to China’s accession to the World Trade Organization, as negotiated by the Clinton administration. Annual Congressional review of China’s trade status ended.
Here are those numbers in 2003:
Manufacturing employment: 14.3 million
Labor force participation rate: 65.9%
Unemployment rate: 5.7%
American policy can’t go back in time to reset our China decision.
Overall employment holds up. Manufacturing gets clobbered – almost 2.9 million jobs lost in just three years. The American economy is big and complicated – see the late 90’s tech stock bubble. Some effects take years to be felt. But when Mr. Trump, Senator Sanders, and others talk about vanished manufacturing, this is when it actually happens.
That’s the simple part. The hard part is what now? Politicians can blame. When politicians win, they become policy-makers, who must act. American policy can’t go back in time to reset our China decision. Some things we can and should do are laid out here. A few highlights:
1) Unless China sharply devalues, ignore the exchange rate. The dollar-yuan exchange rate was perfectly flat from mid-1995 to mid-2005, more than covering the period of manufacturing job loss. Despite endless criticism, the exchange rate shows no statistical connection to American jobs.
2) Postpone a bilateral investment treaty indefinitely. The Obama administration is negotiating an investment deal with China. Either they should stop or Congress should stop them. China is not a good economic partner and history shows that making hopeful agreements with Beijing is a mistake.
3) Punish theft of intellectual property (IP). IP is not just advanced technology; it is anything belonging to a company or individual that is not tangible. IP thieves hurt a company’s competitiveness and thus hurt its workers. And China has been accused, with reason, of being by far the world’s biggest IP thief.
