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Trade Is Good

Last Thursday a small group of representatives led by Gene Taylor, a Mississippi Democrat, released a bill to withdraw from NAFTA, the North American Free Trade Agreement, which was originally passed in 1994.

A day earlier, when U.S. Trade Representative Ron Kirk testified before the Senate Finance Committee, Chairman Max Baucus, a Montana Democrat, said "The U.S. should approve the trade agreements that we have already negotiated and signed. We must address the remaining obstacles to these agreements. But we must also recognize the consequences of further delay."  The three trade pacts on the table -- with South Korea, Panama, and Columbia -- were negotiated by the Bush administration; President Obama opposed them during his campaign.

The uproar on both sides of the free trade debate, interestingly enough, centers on jobs.  With an unemployment rate around 10%, near 30-year highs, it's easy to see why.  But it's hard to see how two sides of an argument can co-opt the same message.  Not everyone can be right.

"Free trade costs American jobs" say those who propose shutting down the country's borders. According to Taylor, "NAFTA has cost the United States millions of manufacturing jobs and hurt national security by encouraging companies to move production to Mexico."

On the other side, proponents say, "Free trade creates jobs."  "Unemployment is killing the U.S. economy and sinking the Obama presidency. Time is running out to open markets that could help repair it."

So what's the truth?  What does the data say?

Well. . .

According to a 2009 white paper by ASU and the Kearny Alliance, called "Who the Heck Cares About Trade?":" Between 1978 and 2008, the real value of goods and services imported to the United States increased 482 percent, from $328 billion to $1.9 trillion (in 2000 dollars) - reflecting the dramatic increase in global economic integration. At the same time, people in America got much richer; real GDP expanded by 132 percent and total civilian employment rose by 49.3 million jobs."

According to the U.S. Chamber of Commerce, "failure to implement the U.S.-Korea FTA while our trading partners go forward with their FTAs with Korea would lead to a decline of $35.1 billion in U.S. exports of goods and services to the world and U.S. national output failing to grow by $40.4 billion. We estimate that the total net negative impact on U.S. employment from these trade and output losses would total 345,017 jobs."

To be fair, House lawmakers did bring some numbers to the table when they unveiled their NAFTA-withdrawal bill: "the U.S. enjoyed a $1.7 billion dollar trade surplus with Mexico in 1993, before NAFTA, compared to a $47.5 billion dollar trade deficit with Mexico in 2009."

A trade deficit only matters if it significantly impedes the country's ability to borrow money at reasonable rates.  The U.S. trade deficit hasn't had that effect (read an excellent explanation of the relationship between trade and currency by ASU).  In fact, exports from lower-cost producing countries like Mexico and China have increased our purchasing power (in other words, allowing us to buy more for our $1).

You could criticize me for starting this post with a foregone conclusion, and you'd be right.  But I have never seen any data showing that on net over the long term (not a three-month snapshot for a small group of people) trade is not beneficial.  Think I'm wrong?  Join the discussion below, but bring your #s.  (You have to create a login id and password with Disqus, but it really only takes 30 seconds.)


This is the national story . . . what about Arizona?  Nobel Laureate Ed Prescott (an economics professor at ASU) has some interesting things to say about the impact of immigration on the economy; and the Republic did a piece not too long ago about the economic opportunity we have in bordering the world's 13th largest economy.  But there's no more time today, so you'll have to come back on Thursday.

Written on Tuesday, 09 March 2010 16:16 by Gary Yaquinto

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