Despite promises that free trade agreements would increase job creation in the U.S., close to 700,000 jobs have been lost as a result of the passage of NAFTA in 1993, according to a new study by Economic Policy Institute senior economist Robert Scott.
According to the analysis, if NAFTA had not been enacted, tariffs on goods passing between the two countries not eliminated, and important features of Mexico's social welfare state not eradicated in 1994, U.S. trade with Mexico would have supported approximately 1.5 million jobs in 2010 in the U.S.
That number came in at just under 800,000 last year, however. In other words, on average more than 40,000 jobs in the U.S. have been lost each year since the passage of NAFTA due to the growing trade deficit with that country.
The study further noted that "[e]ven if increased demand in other sectors absorbs all the workers displaced by trade (an unlikely event), job quality is likely to suffer, as many non-trade-related industries … pay lower wages and have less comprehensive benefits than trade-related industries."
The majority of those lost jobs have been in the manufacturing sector, totaling 415,000. Michigan, Indiana, Kentucky, Ohio, and Tennessee are the top five states losing jobs as a result of NAFTA, the study found. Jobs were lost in all 50 states, D.C., and Puerto Rico.
Electronics and auto manufacturing were the top two industries where jobs in the U.S. were lost.
Historically, manufacturing jobs have had higher rates of unionization in the U.S., leading to higher wages, better benefits, and more stable local communities. In addition, protective tariffs meant that it was comparatively cheaper to make goods in the U.S.
By comparison, Mexico's economy hasn't exactly fared well as a result of NAFTA either, the study explained. About 1.3 million jobs in agriculture have been lost in that country due to the influx of cheaper U.S.-grown products like subsidized corn. The impact of the movement of thousands of displaced agriculture workers to the country's cities has exacerbated social problems like poverty, concentrated unemployment, and the lack of basic social services.
In a press teleconference call Tuesday, May 3, Scott said, "Prior to passage of NAFTA in 1993, supporters claimed that it would create a growing trade surplus and several hundred thousand jobs. My study shows just the opposite has occurred."
Scott further expressed strong skepticism about similar optimistic claims now being made about the proposed Korean-U.S. Free Trade Agreement (KORUS FTA). "The evidence suggests that a growing trade deficit with Korea as a result of the KORUS FTA would lead to additional net job displacement," he pointed out.
In his study, Scott estimated that 159,000 jobs in the U.S. would be lost in the first seven years after the implementation of the KORUS FTA as it now reads.
Of particular note, the KORUS FTA would negatively impact the U.S.-based auto and auto parts manufacturing sectors.
Scott further noted that with the Colombia Free Trade Agreement, recently revived for consideration by the Obama administration, some 60,000 jobs in the U.S. could be displaced. (Learn more about the Colombia FTA here.)
Although Scott's study doesn't exclusively address the manufacturing sector, it is clear that the global movement of capital out of the U.S. as a result of free trade policies has had a significant impact on the decline of manufacturing (and higher working-class living standards) in the U.S. According to a new study by the Information Technology and Innovation Foundation (ITIF), in the past ten years, more than 6 million manufacturing jobs have been lost and more than 57,000 factories have closed.
The ITIF report rejected the notion that manufacturing is "old economy" and should be discarded in favor of a service economy. In fact, the study argued that economic growth isn't sustainable without growth in manufacturing. It called for a carefully planned combination of trade protections and investments (especially for "new economy" sectors) as part of a joint effort of public and private entities to rebuild the U.S. manufacturing sector.
Economist Ha-Joon Chang echoed these claims in his recent book 23 Things They Don't Tell You About Capitalism. The notion that we're living in a "postindustrial" world is a fantasy, he explained. Because services are less mobile, less tradable and less valuable than manufactured goods, a service-oriented economy with a relatively under-developed or under-productive manufacturing sector will create higher trade deficits and lower standards of living.
In addition to the impact of free trade policies, other deliberate political decisions have also hurt the U.S. manufacturing sector. A recent study done for the AFL-CIO revealed that outsourcing policies implemented by the Bush administration saw the Pentagon shift large amounts of its purchases to offshore manufacturers rather than commit to buying from to U.S.-based companies.
Critics of U.S. military policy may be inclined to downplay the significance of this issue. However, the Bush administration's subsequent refusal to address the loss of manufacturing jobs and its decision to cut funds for retraining for workers who lost their jobs due to trade policies meant that many of these workers couldn't find new jobs with similar wages or benefits.
Optimistic claims about job growth resulting from free trade agreements are based on the fact that reduced trade barriers increase trade. Increased trade is supposed to mean higher overall growth rates. The historical evidence reveals, however, that reduced protections in trade-related industries have allowed companies to seek higher profits from cheaper labor elsewhere.
Higher profits translated into bigger CEO salaries and fatter bonuses. Meanwhile, U.S. workers have seen their living standards eroded, their jobs forever changed, and their communities destabilized. Inequality between CEO pay and worker pay is at an all time high.
The loss of jobs and growing inequality in the U.S. are the key reasons the AFL-CIO has steadfastly opposed the recent raft of free trade agreements. In a speech to the Council on Foreign Relations last month on the subject, AFL-CIO President Richard Trumka said, "Large U.S.-based multinational corporations have thrived as global enterprises, but the United States is suffering from massive job loss and unsustainable trade deficits—masked by one ultimately ruinous bubble after another."
"Worldwide, trade and capital mobility have undermined the bargaining power of workers and made all workers vulnerable to competition from countries without democratic protections or basic human rights," he added.
He urged renewed investments in education, infrastructure, and new technology in the U.S. He called for trade agreements with countries that protect the environment and human rights. He said the U.S. should use a balanced "jobs lens" approach to trade agreements that don't prioritize "free market" ideology over the actual numbers of jobs created or lost.
"Ultimately, we must change both the details of our trade policy and embed that policy in a coherent national economic strategy, if we are going to close our current account deficit and quit borrowing hundreds of billions of dollars from the rest of the world every year," he added.
Scott's study can be found at the Economic Policy Institute website here. A link to the ITIF and AFL-CIO studies can be found here.
