By Mathilde Ngo Mbom
In an interview with The Economist in May 2017, President Trump revealed his vision of a fair trade economic policy under his presidency, which is synonymous to protectionism for any economist. From publicly threatening to impose 35 percent tariffs on cars made in Mexico to suggesting withdrawal from The North American Free Trade Agreement (NAFTA) on Twitter, President Trump views the current terms of trade agreements, especially NAFTA, as an impediment to the potential growth America can achieve. However, recent empirical studies suggest otherwise.
From Protectionism to Free Trade in America
In 1934, the legislature of the Reciprocal Trade Agreements Act (RTAA) marked a shift from protectionism, a trade policy restricting foreign competition by taxing imports, to economic liberalism or free trade, where tariffs, quotas and other restrictions to international trade were either reduced or eliminated. Since that time, the US has negotiated and signed various regional, bilateral and international trade agreements with various partners across the globe. Consequently, trade has become an increasingly large contributor to the US real GDP rising from 9 percent in 1960 to 28 percent in 2015 according to the World Bank.
Major Impact of NAFTA in America
Trade liberalization under NAFTA has created many jobs in the US. A report made in 2016 by Trade and Partnership Worldwide, reveals that the implementation of NAFTA in 1994 led to the creation of 41 million US jobs in 2014, representing nearly 21 percent of total employment. Moreover, a report from the US Bureau of Economic Analysis found an increase of trade-dependent jobs from 31.3 million in 2004 to 41 million in 2014. The job creation resulted in the decline of US unemployment from 6.1 percent in 1992 to 4.6 percent in 2008 before the financial crisis.
President Trump often voices his grievance about the trade deficits with Mexico. This is marked by a higher dollar value for Mexican goods and services being sold in the US compared to the value of American goods being sold in Mexico. However, higher imports from Mexico have raised incomes and the standard of living in the US. As a matter of fact, the Peterson Institute for International Economics has reported that the purchasing power of an average American household is boosted by US $18,000 annually due to cheaper imported products resulting from lower manufacturing costs.
Palliative Solutions to Negative Outcomes of NAFTA
Whether the tone in trade policies were inspired by the economic nationalist Steve Bannon or used as a way to gain votes in the Rust Belt, the claims of President Trump regarding the benefits of ‘’fairer’’ NAFTA to Americans lack credibility in the long run. It is undeniable that there are some casualties resulting from expanding trade, especially in the manufacturing industry. In fact, a study done by the Economic Policy Institute cites US trade deficits with Mexico under NAFTA as the main cause for the displacement of 682,900 US jobs between 1993 and 2010, 61 percent of these jobs being well-paying manufacturing jobs. However, the US should take this opportunity to adapt its workforce to the current global business environment: the country could expand its unemployment insurance program in order to provide income to displaced workers while better training programs are being created and implemented. This would lead to better skilled workers performing less redundant tasks. Risking a trade war with Mexico or Canada would benefit no one, especially not Americans.
