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Bashing Trade Is a Popular Election Year Target

Pundits are opining that Bernie Sanders’ significant win in the Democratic primaries in Michigan was primarily due to his vehement anti-trade stance. Donald Trump’s surge in the Republican primaries in Michigan and Mississippi also came in part from his own protectionist position. The Wall Street Journal has a lengthy front-page article on the rise of protectionist sentiment among both Democratic and Republican voters. Major newspapers such as the Washington Post have pointed to Sanders’ use of “bogus numbers” when attacking free trade in his stump speeches and in his debates.

Almost every candidate is pointing to trade agreements as being largely responsible for U.S. job losses and citizens’ angst. Even 22 years after the North American Free Trade Agreement (NAFTA) went into effect, NAFTA is blamed for large job losses in the automotive sector and in traditional manufacturing centers. And that rhetoric seems to be registering with the voters.

Steve Chapman’s column “Bernie Sanders’ Myths About Free Trade” seems like a voice in the wilderness in this year’s presidential primaries as he points to some of the facts about trade and NAFTA. Chapman notes that many of the job losses in the last 30 or so years were occurring long before NAFTA, for a variety of reasons:

Michael Moore's documentary film "Roger & Me," about the calamitous shutdown of General Motors plants in Flint, came out in 1989 — more than four years before the North American Free Trade Agreement took effect and long before China exported much of anything. Detroit lost more than a third of its population between 1960 and 1990.

A generation ago, the auto industry was competing not with companies in Mexico or China but with those in Japan. Toyota, Honda and other Japanese companies took sales away from the Big Three, particularly after the energy crisis of the 1970s, by offering cars that were more reliable and fuel-efficient.

Chapman also points to other causes of Rust Belt job losses—many U.S. manufacturing jobs moving to other states with strong right-to-work laws and the rapid rise in automation in all manufacturing sectors, which replaced many workers and allowed output to increase.

Critics of NAFTA often single out the supposed huge trade deficits with Canada and Mexico, but don’t mention that most of those deficits result from U.S. imports of oil and gas from those two countries. The House Committee on Ways and Means last year published a report showing that in 2014, except for imports of oil and gas from Canada and Mexico, the U.S. had an overall trade surplus of $41.4 billion with those two NAFTA countries. The report states: “In 2014, over one-third of U.S. crude oil imports were from Canada ($83 billion), and over 10 percent were from Mexico ($27 billion). It is oil & energy trade that generates an overall U.S. trade deficit within NAFTA, not other manufacturing, services, or ag.”

Here are several other points made in the Ways and Means release that have been overlooked in the presidential debates:

“Our NAFTA trade surplus extends across all three major sectors of the U.S. economy:

  • Manufacturing: U.S. trade surplus of $21.5 billion in 2014. U.S. manufacturing output rose faster in the 15 years after NAFTA entered into force than in the 15 years before.
  • Services:  U.S. trade surplus of $41.8 billion in 2014.
  • Agriculture, food & beverages:  U.S. trade surplus of $1.8 billion in 2014.”

But the focus on deficits and surpluses also misses a major evolution in trade. With global supply chains operating in almost every industry, seldom are major goods produced entirely in any one country. Almost every electronic product, for example, has intermediate inputs from several different countries before it is assembled and exported. That also means that imports of those inputs are critical to much of U.S. manufacturing today.

Imports are also important for consumers, who can choose from a wider variety of goods and services at varying prices and quality levels. As a recent article in International Business Times noted, it’s the poor who benefit most from trade in terms of lower prices and more choices. The article pointed out that “[a] 2015 study out of UCLA and Columbia University showed that the lowest 10 percent of wage earners saw a 63 percent boost in buying power from trade, compared with just a 28 percent lift for the richest 10 percent.”

The negative view of trade today as exhibited by leading presidential candidates and many of their supporters is built on slogans and rhetoric, not on reality.