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Donald Trump’s Bad Reasoning on NAFTA

In this speech Donald Trump makes the claim that North Carolina has lost half of the manufacturing jobs (starts at about the 45:30 mark if you don’t want to suffer through the whole horrible thing). The implication, which he does not make explicit, is that those jobs were lost due to NAFTA. Problem is that there a number of facts that make Trumps implications quite dubious.

First up is that manufacturing employment worldwide is declining. With declining manufacturing employment worldwide and also a long term declining trend in the U.S. it is not clear that the jobs Trump implies were lost due to NAFTA would have still been around without NAFTA.

Second is that manufacturing employment drops when there is a recession and we had one heck of a recession in the time frame Trump references. So would those jobs have been saved if we did not have NAFTA? It is hard to believe that.

And, once again maintaining jobs via protectionism is really nothing more than a type of welfare. It is nothing short of a transfer from other sectors of the economy to the protected sector. This does not enhance productivity and in fact may reduce it.

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About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research.

Comments

  1. Patrick G says:

    We don’t know for certain if the North Carolina lost manufacturing jobs were lost solely because of NAFTA. We do know that Great Britain pursued open trade policies for a generation in the nineteenth century. High tariff Germany and the U.S. left the workshop of the world a second rate manufacturing power. Somehow the U.S. had its greatest economic growth behind very high tariff walls. No doubt other factors contributed to this success but it is pretty safe to say “protectionism” does not always lead to economic ruin. The rest of the world has studied our economic history and they aren’t buying free trade for themselves. They are happy to take our manufacturing and sell products in our market.

    Calling NAFTA a free trade agreement is an Orwellian use of words. It is a managed trade agreement and Trump is right when he says we have managed it badly. If it was free trade we could simply close all the tariff offices and other trade offices. You won’t find American cars in Japan. China aggressively steals our corporate technologies and is happy to strip the US of manufacturing.

    No, Smoot-Hawley tariffs did not cause the Great Depression. These were inconsequential but that is another argument.

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  2. Rob Prather says:

    @Patrick G: I’ve never heard anyone claim that Smoot-Hawley caused the Great Depression. It almost certainly extended it and worsened it, though.

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  3. Tyrell says:

    I have written here time and again about the disastrous effects of the trade treaties on the textile, furniture, and other industries that started in the ’70’s. Some of the towns around here are dotted with huge, empty factory buildings, some of which date to the 19th century. A whole culture of the mill villages has been lost. It seems now the biggest “industries ” around are fast food joints, convenience stores, and “dollar” stores !

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  4. stonetools says:

    I guess Mr. Verson must like making the free trade argument. This is his third post in two weeks on it. The discussion always ends in the same way. Yes, free trade and comparative advantage are great, but they come with costs: displaced workers and economically blighted areas when the factories made unprofitable by foreign competition close.
    Mr. Verdon does admit these costs exist , unlike some free trade experts who simply pretend that those costs aren’t real. On the issue of what to do with those displaced workers, Mr. Verdon allows that the government should directly aid those workers.
    When we then ask: What form should that aid take, and how will we pay for it?, Mr. Verdon vanishes, only to reappear a few days later with yet another pro free trade post. Why, it’s almost like he has no idea of how to solve the very complex problem created by this wondrous free trade policy!

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  5. stonetools says:

    Double post deleted.

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  6. Stormy Dragon says:

    US Manufacturing Output vs Employment since 1975

    Output is up more than 50% even as employment has dropped almost 50%. The thing really killing manufacturing jobs isn’t globalization its automation. The jobs aren’t going overseas; they’re disappearing entirely.

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  7. DrDaveT says:

    And, once again maintaining jobs via protectionism is really nothing more than a type of welfare.

    Ever read Player Piano, Steve?

    Let’s say you’re right. Is that a bad thing? (I’m giving you the benefit of assuming that you are a sensible adult who can get past the kneejerk “Welfare bad!” reaction to actually consider costs and benefits.)

    As @stonetools notes above, everyone understands that having lots of people with no income is both a social failure and a dangerous situation. So what form of government action do you favor to deal with the consequences of lost of manufacturing jobs?

    1. Employing people that the market wouldn’t employ without subsidies/supports?
    2. Direct cash payments to the unemployed?
    3. Debtor’s prisons and work houses?
    4. Let ’em starve?

    I have a fifth option I prefer to most of those — or at least as a supplement to #1 — but I’d first like to hear your opinions on the question, Steve.

    If you have a fifth option that’s better than any of those, please

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  8. stonetools says:

    @DrDaveT:

    Well Steve did finally admit on another thread that he had no good answer to the problem. He is open to any answer so long as it’s not “Government redistribution ” which supposedly kills “incentives”, etc. Typical libertarian response.
    You may as well go ahead and post your option 5. Steve admits “he ain’t got nothing”.

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  9. grumpy realist says:

    @stonetools: Steve ignores the fact that if you have enough unemployed people, you end up with revolutions. We have enough historical evidence of this.

    I would think that protectionism and “government welfare” is better than getting hanged from a lamppost, but I guess Steve is willing to sacrifice himself. Yay. Round of applause for Steve!

    I’m not. I’d prefer to stay alive, thankyouverymuch. I’d rather provide protectionism and redistribution. Partly out of self-interest, partly because it’s the “right thing” to do.

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  10. gVOR08 says:

    @Rob Prather:

    I’ve never heard anyone claim that Smoot-Hawley caused the Great Depression.

    You don’t get out enough. Michele Bachmann, for one. Although if you want to get technical she blamed “Hoot-Smalley”, passed by FDR.

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  11. DrDaveT says:

    @grumpy realist:

    Steve ignores the fact that if you have enough unemployed people, you end up with revolutions. We have enough historical evidence of this.

    I’m sure Steve believes our militarized police will be able to deal with any proletarian uprisings. It’s an odd position for a Libertarian, but it’s the only explanation I can think of.

    More immediately, Steve’s economics curriculum at UCLA apparently didn’t cover the inefficiency of a large unemployed underclass. Those people could be productively maintaining infrastructure, providing services, and becoming upwardly mobile in ways that increase long-term productivity. Instead, Steve seems to think that letting them become quarterly profits road kill somehow increases the long-term productivity of the economy. It’s the economic version of eugenics theory.

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  12. gVOR08 says:

    And, once again maintaining jobs via protectionism is really nothing more than a type of welfare. It is nothing short of a transfer from other sectors of the economy to the protected sector. This does not enhance productivity and in fact may reduce it.

    First, this is another example of my thesis that for conservatives nothing is about what it’s about. This isn’t about helping people who are hurt by trade deals. It’s about welfare! Incentives! Efficiency! Squirrel!

    Maybe it would help to think of it as a Pigovian Tax, a tax to compensate for an externality. While free trade may help everyone on average; a) free trade deals and free trade have little to do with each other, and b) some people are helped and others hurt by trade deals. Many of those helped are helped because they were able to lobby the trade deal. The help given some and harm to others are externalities. I fail to see the inherent evil in taxing those who benefit in order to help those who are hurt.

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  13. gVOR08 says:

    And it’s not bad reasoning on Trump’s part, it’s lying.

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