NAFTA is the North American Free Trade Agreement that lowers trade restrictions between the U.S. and Canada and Mexico, and was signed by President Bill Clinton in December 1993. At the time, NAFTA, which was widely supported by both Republicans and Democrats, was promised to boost jobs on both sides of the border.
Donald Trump says NAFTA was the worst trade deal the U.S. has ever signed, and has and continues to kill American jobs.
The truth, as usual, is somewhere in the middle.
What’s true is that since Nafta, America’s trade deficit with Mexico has grown pretty dramatically. Mexico and the U.S. had on average a balanced trade account with Mexico over the 15 years before NAFTA. These days, the U.S. trade deficit with Mexico is the highest it has ever been.
The questions is how much of that is NAFTA vs. technology eliminating jobs vs. the march of jobs to places in the world that have lower wages.
American companies have moved more jobs to Mexico since NAFTA. One example that Trump often cites, and cited in the debate on Monday night, is Carrier, an air conditioning company owned by United Technologies (UTX), which Trump says moved 1,400 jobs to Mexico. Trump repeated a claim that he had before, that Ford (F) is moving jobs to Mexico as well. Ford refutes that, tweeting during the debate that it is hiring—not firing workers in the U.S.
Ford did recently decide to move the manufacturing of some of its smaller cars to Mexico. But the company says the move is making way for other cars to be produced at the plant in the U.S. that used to make those cars, and that no jobs will be lost in the U.S.
NAFTA has made it easier and cheaper for U.S. companies to move jobs to Mexico. But the question is whether those jobs would have moved to Mexico or elsewhere anyway, with new companies opening up in Mexico and taking those jobs, rather than U.S. companies alone moving there.
And while the U.S. does buy more goods than ever from Mexico, we also sell a lot—a total of $214 billion in Mexico last year alone. So NAFTA is creating some jobs, while others are moving oversees.
And trade with Mexico helps the economy in other ways besides jobs. The goods that Americans buy from Mexico is also helping to lower prices and keep inflation in check, something that has allowed the Federal Reserve to keep rates near zero for a historically low time.
Essentially, for many economists, the answer to the question of whether NAFTA is good or bad is that it doesn’t really matter. We had no choice. The jobs were going overseas. And in that context, NAFTA wasn’t a bad deal. The bad deal may have been what the government did for trade policy after NAFTA, as Fortune’s Chris Matthews has reported.
Donald Trump’s argument that the American worker has been hurt first and foremost by two Clinton-era trade policy decisions is a vast oversimplification of the problems the U.S. economy faces. The United States would have likely faced increased competition from lower wage economies regardless of whether we accepted China’s entry into the WTO or made a trade agreement with Mexico. But the U.S. government could have done more to protect American manufacturing and improve the welfare of the working class.
Alan Wolff, a former top trade negotiator for both Republican and Democratic administrations, argued on Fortune in April that the U.S. economy is essentially global now, with or without trade agreements. Rolling that back, he said, would cause a major recession.