US Employment Implications of Preferential Trade Arrangements

In the debate on Monday, Donald J. Trump comments on Nafta’s impact:

You go to New England. You go to Ohio, Pennsylvania. You go anywhere you want, Secretary Clinton, and you will see devastation where manufacturing is down thirty, forty, sometimes fifty percent — NAFTA is the worst trade deal maybe ever signed anywhere but certainly ever signed in this country.

Here is a time series plot of manufacturing value added in the economies identified by Mr. Trump.


Figure 1: Log real value added in manufacturing in 2009$ in Ohio (blue), Pennsylvania (red), and New England (red). 1986-96 data (SIC) spliced to 1997-2015 data (NAICS). Source: BEA and author’s calculations.

Perhaps Mr. Trump was speaking about employment. From a How Preferential
Trade Agreements Affect the U.S. Economy
, a CBO report released today, comes this assessment:

Most economic evidence suggests that the total number of workers directly affected by PTAs has been too small to significantly affect labor market conditions nationwide. Most of that evidence comes from studies of NAFTA, the agreement with the greatest potential to affect U.S. employment. Those studies concluded that NAFTA’s effects on the size of the labor market and net changes in total U.S. employment each year have been small. Those findings are consistent with the economic theory that PTAs should have little long-term effect on total employment because all displaced workers would eventually find new employment or would have stopped working
anyway. However, according to some estimates, NAFTA contributed to many lost jobs.

Conversely, many U.S. workers have had some small benefits as a result of PTAs. By lowering consumer prices (primarily through their effects on prices of imported goods) and increasing the productivity of workers (from greater competition), those agreements have probably increased average real wages for U.S. workers, albeit only slightly. If that slight increase occurred, it would have induced more people to work, increasing the U.S. labor supply to a small degree. To CBO’s knowledge, there is no evidence of such an effect on the labor supply, although if it had occurred it would have been small and extremely difficult to detect.

8 thoughts on “US Employment Implications of Preferential Trade Arrangements

  1. baffling

    having spent most of my life in both pennsylvania and ohio, i cannot really recall any real time effects of nafta in my surroundings-mostly in the industrial locations. the significant industrial impacts that i do recall occurred during the 1980’s, prior to the graph you have presented menzie. we see the impact from the financial crisis in the late 2000’s. do we get similar downturn in the earlier 1980’s? i wonder if people today are simply lumping a couple of economic downturns into one event that straddled them both-nafta-in an inaccurate recharacterization of the past? nafta may have had an impact on my standard of living during that time, but it was certainly not abrupt or definitive.

  2. Lyle

    Note that for steel workers in the midwest the main cause is the fact that compared to 1980 it now takes only 20% of the man hours to make a ton of steel. To give a specific example from Vaclav Smil, the US Steel Gary works now makes about 20% more steel with 1/5 the labor force it needed in 1980.

  3. Rick Stryker


    What I find interesting about Trump is that he’s trying to put together a coalition different from that of the more typical Republican. On trade issues, Trump sounds very much like a Democratic politician on the left wing of the spectrum. Trump is trying to get to Hillary Clinton’s left on trade, a feat that candidate Obama accomplished in 2008, in order to appeal to working class workers in the rust belt states that traditionally vote Democratic. Compare Trump’s rhetoric above with candidate Obama over 2007-08 at various debates, particularly Obama’s condemnation of unfair trade agreements starting about 2:41 in the video. Obama said if you travel through Youngstown, OH or his own state of Illinois, you’ll see “entire cities devastated” by unfair trade agreements. How is what candidate Trump is saying above really different from what candidate Obama said in 2008?

    1. baffling

      One problem is those Ohio cities were not really devastated by unfair trade agreements. The were damaged by steel mill operations which did not incorporate the latest technologies to improve the efficiency of the operations. Many of those workers moved south, to the newer mills. Unfair trade agreements were not the issue-it was the inability to compete in a fair trade environment. That was rather unfortunate. Trump, as a current presidential candidate, should be more aware of these issues.

  4. Rick Stryker


    Here’s another illustration of the point. Here’s a video of candidate Obama in Lorain, OH viciously attacking NAFTA and Hillary Clinton’s support for it. Obama said that NAFTA cost 1 million jobs, with 50,000 of those jobs lost in OH.

    Do agree with candidate Obama that NAFTA cost 1 million jobs? How is candidate Obama different from candidate Trump on trade?

    1. 2slugbaits

      Q: How is candidate Obama different from candidate Trump on trade?

      A: Obama is a lot smarter than Trump…smart enough to identify talent and listen to good economic advisors. Smart enough to know that it’s okay to change your mind when you’re wrong. Candidate Obama was also wrong about the need for the health insurance mandate when candidate Clinton (correctly) argued that a mandate was required.

      I find it impossible to imagine a President Trump ever admitting to anyone, including himself, that he might be wrong on an issue.

      FWIW, I supported NAFTA at the time and I still think it was the right thing. What I did not support was how it was oversold by its supporters. NAFTA was sold as a jobs bill, which it wasn’t. The way it was sold almost guaranteed that many people would be disappointed.

  5. Alex

    Lol! Here’s Obama on Single Payer health insurance:

    Harry Truman: Given the choice between a Republican and someone who acts like a Republican, people will vote for the real Republican all the time”

    I don’t know if this is connected to NAFTA or not. I’ll leave it up to smarter people than me.
    Not in the Labor Force ( ):
    1975 Jan: 58,627,000
    1992 Dec: 65,230,000

    1993 Jan: 65,562,000
    2016 Aug: 94,391,000

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