The Republican Party’s presumptive candidate for the presidency of the United States, Donald Trump, has had an adverse effect on opening the border, and, in particular, on trade between the U.S. and Mexico, one of the warhorses. He claims that free trade is not profitable for the U.S. According to him, NAFTA is a “disaster” that must be renegotiated, an opinion shared by 33 percent of Canadians, based on a recent poll. Although most of Donald Trump’s platform is unpopular in Canada, his opposition to free trade seems to somewhat resonate. The reality nonetheless remains that the agreement has had positive effects on the three participating countries.
Trade liberalization has brought about sustainable benefits, despite a few short-term setbacks. That is one of the incontestable conclusions of the economic analysis, shared by almost all economists. Free trade increases well-being for the countries involved, thanks to a decrease in prices and gains in efficiency.
These effects were observed following the start of NAFTA in January 1994. Work productivity has increased everywhere in North America. In Canada, it has increased by 14 percent. In terms of value, U.S. trade with Canada and Mexico went from $481 billion in 1993 to $1.1 trillion in 2015. While Donald Trump claims that Americans “don’t make anything anymore,” the American manufacturing sector has increased production by 58 percent since the agreement has come into force.
There is no doubt that, as Donald Trump loves to recall, there are fewer jobs in the U.S. manufacturing sector than before, or 29 percent less than there were prior to NAFTA going into effect. Some of these jobs disappeared within less efficient companies that produce at higher prices than their new competitors. For others, this change is due to technical innovations that increase productivity and allow quality of life to grow.
During the 10 years following NAFTA, the opening of the borders was responsible for a slight increase in real salaries in the companies involved – 0.32 percent in Canada and 0.11 percent in the U.S. NAFTA enabled jobs to be created in export industries that pay their employees 15-20 percent more than industries that focus on domestic production.
These data, however, do not convey all the effects of free trade. In many cases, imports stimulate domestic production instead of replacing it. Around 25 percent of American imports from Canada are American-designed products, or were built or rebuilt there, before being re-imported. When it comes to American imports from Mexico, this number is as high as 40 percent.
NAFTA’s effect on the Mexican economy, which has been in bad shape, has often been forgotten in these debates. Free trade reduced the price of several consumable goods by half in just a few years, which helped improve the perpetually precarious circumstances of many Mexicans. The World Bank estimated in 2004 that NAFTA moved 3 million Mexicans above the poverty line.
Free trade has an undeniably positive effect on the economy. If Donald Trump wants to negotiate “a better deal” for the United States, it will undoubtedly have to be an agreement that liberalizes trade even more.
Leave a Reply
You must be logged in to post a comment.