NAFTA – not what it’s cracked up to be

The North American Free Trade Agreement came into existence in 1994. As a result of it  blue collar workers suffered.  High school drop-outs in areas heavily impacted by NAFTA  had 8% slower wage growth in the 1990s compared with those in less affected areas. The industries that lost the old protections saw their wages fall by 17 percentage points, relative to less NAFTA- affected industries. According to recent estimates the net economic gain to the US of NAFTA was well below 0.1% of GDP, e.g less than one tenth of one per cent of national income. Instead of putting resources into re-training, new skills, infrastructure etc that might have delivered decent jobs, the attitude was. “Well, we have to put up with losers. The country gains overall”. Well, it didn’t, and as a result we got……….Trump!

The shameful thing is that the Democrats were gung-ho about NAFTA, even though it had a painful effect on the Party’s natural base, the working class. Hillary didn’t get it at all. A lot of Democrats still don’t.  I remember years ago holding forth about the stupidity of shipping out jobs to China and South East Asia without energetically trying to replace them  at home .  There  was bound to be a huge backlash eventually.  Regrettably I was correct .  The “American Dream” died by economic projection.

It sounds as if Trump is right, too, all the more so because these trade agreements usually include provisions whereby disputes go before a small panel of lawyers who specialise in these matters. The lawyers are perceived to be “friendly” to corporate, not consumer, interests.  Of course.

(I owe the statistics above about the GNP to Dani Rodrik, professor of Political Economy at Harvard).