Trump and Sanders in Agreement? Against NAFTA and Free Trade

To win over support from Wisconsin voters, presidential candidates begin to focus on economy and employments rate. Both Trump and Sanders said they led the opposition to NAFTA and permanent normal trade relations with China, which they said have cost millions of U.S. jobs and led to “a race to the bottom” for workers.

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(Bernie Sanders picketed against Nafta in the Nineties and has slammed the treaty for suppressing US wages in televised debates)

Politicians declare to bring the lost jobs back to America by means of abandoning trade agreement of NAFTA and also in terms of incoming TPP. However, free trade, in fact, would benefit the whole US instead of robbing jobs from US to other countries.

The North American Free Trade Agreement (NAFTA) provides preferential tariff treatment on goods originating in and traded among Canada, Mexico and the United States. Such trade agreements are not only economic, but political, developing closer relations and partnerships among the member countries.

The most direct and short-term effect of trade partnership is reducing jobs, because in the less comparatively competitive industry companies will lose the protection by tariff and have to fire part of workers. That’s why the insurrection handed Michigan’s Democratic primary to Bernie Sanders while continuing to buoy the insurgent Republican candidacy of Donald Trump two weeks ago.

In fact, free trade agreements bring significant advantages and most of the low-wage job loss is more part of ongoing modernization and globalization than a consequence of the trade agreements themselves. For example, now that NAFTA is a relatively mature 22 years old, it appears that it has been a net positive, but neither as great as its proponents once argued nor as bad as its opponents warned. Trade among the three members (Canada, Mexico and the U.S.) is up 300% and they are now each other’s largest trading partners. Economies have been modernized and integrated, more direct investment in the poorest country, Mexico, has been facilitated, and real wages are up. Ross Perot’s “giant sucking sound” of jobs moving to Mexico was never heard—though manufacturing jobs are down, manufacturing is up and productivity, not NAFTA, is the difference. Jobs move because of cheaper labor, not lower import costs. And many higher-skilled jobs have been added.

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(Inspecting a Ram 1500 at the Chrysler Warren Truck Assembly plant in Michigan.CreditFabrizio Costantini for The New York Times)

NAFTA could create more jobs in other divisions other than those lost, by creating regional integration. Taking auto industry for example, the main competitors for US is not either Canada or Mexico in the partnership, but Japan and Germany. The integration of North America would increase the comparative advantage in US auto industry: as a platform of much lower wage, Mexico could focus on providing car accessories to US at a lower rate and manufacturing, thereby increasing the scale of production. Even car manufactures from other countries could take advantages of this e.g. the Honda CR-V assembled in El Salto, Jalisco, for example, uses an American-made motor and transmission. The industrial clustering in Mexico would bring job opportunities to the whole North America and prevent the potential production chain which could be developed in Asia.

Tearing up NAFTA won’t bring benefit to US citizens. If we were to follow Mr. Trump’s saying and to raise a big tariff on imports, (and cope with the barriers raised by other countries in retaliation), huge disruptions would rise up in the short term, for both suppliers and workers.

Those presidential candidates are simply focusing on short-term and most obvious part to attract votes for themselves. Free trade benefits the world by allocating the resources more smartly. Workers harmed by free trade need better ways of adjusting to it — as do those threatened by domestic competition or new technology. What the government can do is care more about management cost and provide assistance to blue-collar workers. Banning trade agreement, no matter NAFTA or the incoming controversial TPP, is clearly not the solution to the economy anxiety.

 

 

References:

http://www.nytimes.com/2016/03/30/business/economy/nafta-may-have-saved-many-autoworkers-jobs.html?_r=0

http://www.forbes.com/sites/daviddavenport/2016/04/01/trump-and-sanders-in-agreement-the-strange-politics-of-free-trade/#76f9b54728bc

http://www.telegraph.co.uk/business/2016/04/03/anti-nafta-rhetoric-in-us-presidential-race-marks-fresh-attack-o/

http://www.nytimes.com/2016/03/16/business/economy/on-trade-angry-voters-have-a-point.html?_r=0

 

 

 

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3 Responses to Trump and Sanders in Agreement? Against NAFTA and Free Trade

  1. yuliwu says:

    Thank you for posting this blog. I find it quite interesting to read. I agree with you on the point that completely banning NAFTA or TPP will harm the US economy in the long run, although it may benefit the nation in the short run as a excuse of presidency runners to boost the US economy and lower unemployment rate.
    I like your argument that losing job is not caused by free trade but a shift of labor allocation. US labor is shifted to tech-related and service industry, and will earn a better income. If they are willing to relocate, they can certainly work at developing countries for a American multinational company. By this reallocation of talents, the US actually creates other jobs if not more in other industry such as financial and tech. This serves as a way to promote human civilization and globalization.
    Adam Smith said we all get benefited by cooperating with each other freely. Since NAFTA, TPP and other free trade agreements have provided us such a opportunity to cooperate between nations, why should we cling to our own nation’s short run interest, knowing the entire world will get benefited by free trade in the long run.

    • YI Elaine Wang says:

      I found it is interesting that in this particular president campaign, more mentionings about the trade than previous terms. Even both the democrat president candidate Bernie Sanders and the republican candidate Donald Trump both opposed trade, but they are against free trades for different reasons. Sanders supporters are skeptical of capitalism and believe in that workers must be protected from free markets and free trade. Trump supporters are nationalists who are against both free trades and immigrates.
      Looking at the free trade it looks like free trade have hurt some US workers especially manufacturer workers. However, the adverse effect on manufacturer employment are not distributed evenly. Local communities, more exposed to competition from losing the manufacturer jobs, are very upset about free trade. Overall, the costs from trade are usually much easier to see than the benefits. The trade ads were heavily concentrated in parts of the places that lost many heavy manufacturing jobs like Michigan. It’s easy to directly link these hardships with specific trade agreements.
      Free trade agreements really have hurt some American workers. But it’s not clear new protectionism will help them. The loss of manufacture job trend started at 1950’s and is still going on now. The opened up trade with Mexico in 1994 or China in 2000 did not change the trend. Trump and Sanders campaigns draws a lot of support from non-college educated voters. Lots of manufacturer employees are non-college workers. So less-educated Americans are most likely to see their jobs are given to China, India, Mexico or elsewhere. Better educated people are better off at competing in a global labor market, therefore the education is much correlated with their opinions about trade. A college education also exposes individuals to ideas about the benefits of free trade. The service industry benefits heavily from free trade. So providing more funding in technology, continuous education and job training will help the people more directly.

  2. Justin M. Wright says:

    Good article and I like that it is pointed out that the issues brought up by the candidates are short term. That being said the short term is what matters on an individual level for those workers that are losing jobs. It takes time for them to either find other jobs with the skills that they have or learn new skills that they can market to the industries that are hiring now. Most of these workers in any of these countries most likely do not have the financial stability to be able to take the time required to find a new job or learn a new skill which is why they are so influenced by what they candidates are saying. It is hard to say to someone that no longer has a steady income stream that the in the long run they will most likely be better off because they lost their job. They are not concerned with what is going to happen in years at that point, they are concerned with how they will pay their bills and put food on the table tomorrow.

    Additionally, what about workers that are within 10-15 years of retirement? They have even less of a need to learn a new skill to be able to transition industries. This could have a large impact on their retirement as they will most likely make the easiest transition possible just to continue to have income even if it means accepting a lower income. All in all free trade is great overall for countries in the long term as the post points out but selling that to individual people is difficult. The politicians know this and that is why they are placating to the concerns of these individuals. Most people don’t know the benefits of FTA’s and only respond based on what they see or experience, which makes selling them much more difficult than renouncing them.

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