Dear NAFTA Bashers: You Need New Charts

A Policy Options writer blames NAFTA for the decline of US manufacturing. Amusingly, his charts prove otherwise.

An article on Policy Options claims the Facts Support Trump on NAFTA.

Based on the charts presented, it's is one of the silliest articles I have ever seen.

Inflation Adjusted Hourly Earnings

In the US and Canada, real hourly earnings topped 18 years before NAFTA.

Auto Production

US auto production peaked 19 years before NAFTA.

The article concludes: "Free-trade agreements will not be supported if they threaten people’s livelihoods."

I looked up Jordan Brennan, the author of that article.

He's an economist for Unifor, Canada’s largest private sector labour union.

The Real Deal

When your position necessitates having a certain view, that's the view you present even when your own charts show otherwise.

Manufacturing jobs are on the decline everywhere. The trend started long ago. It's called automation.

The New York Times writes about the Mirage of a Return to Manufacturing Greatness.

"On net, global manufacturing employment declined from 1996-2006" says Slate.

The situation will get worse. Clothing is about to be automated and it will take millions of jobs with it.

Brennan and Trump are fighting a battle that cannot be won.

Jobs Not Coming Back

The Brennan bemoans the loss of jobs, but nothing will bring them back. He also bemoans wages but that is barking up the wrong tree as well.

Rising wages incentivize companies to automate. Cheap money from central banks makes financing easy.

Standards of Living

It is foolish to believe there is a benefit to paying more for something. But in general, that's what unions stand for.

If China or Mexico gave us cars for free we should take them. The same with solar panels from China.

When products are cheap, standards of living rise. That's the bottom line behind "fair trade" nonsense.

Trade War

Brennan practically screams for a trade war, but that's a Huge Mistake.

States like Michigan and Ohio pushed Trump over the top in his victory over Hillary, but bad policy is bad policy.

Clueless About Trade

Trump does not understand trade deficits or the folly of Tariffs.

Brennan can't. His position as economist for a large union would not let him come to the proper conclusion, even if he was capable.

For a mathematical explanation of trade deficits, please see Trump's Tariffs Show He's "Clueless About Trade".

Trump's trade policies are set to exacerbate the next global recession, but economic illiterates are egging him on.

Mike "Mish" Shedlock

Comments (31)
No. 1-31
Snow_Dog
Snow_Dog

“If China or Mexico gave us cars for free we should take them. The same with solar panels from China.“

Neither is happening, but nice try Mish.
What IS happening is 15M illegals are in the US being granted sanctuary while the Big Three US automakers take sanctuary from livable wage pressure by offshoring their production to Mexico. That is clear in the post-NAFTA chart and might be the chart that The a White House has been looking at.
economic sanctuary

FelixMish
FelixMish

Peter Drucker accurately predicted the trend in manufacturing jobs a long time ago. He did this by observing that he could use the same curve as had already taken place in farming jobs to extrapolate the future of manufacturing jobs.

This is a technique I have found can be easily used to make predictions that will be laughed at, argued against using common knowledge and understanding. And turn out to be correct and accurate, nonetheless.

Greggg
Greggg

A quick look at the 3 charts... Automation.

Germ
Germ

"When products are cheap, standards of living rise."

Germ
Germ

But not for those who lost their jobs because their outsourced job was the reason for the cheap product!

philbq
philbq

Before NAFTA, the U.S. had a trade surplus with Mexico. After the implementation of NAFTA in 1994, the U.S. trade surplus reversed, and has been a growing trade deficit since. Many U.S. companies have closed U.S. factories, and moved production to Mexico, where the minimum wage is $.58. Companies like Hershey, Nabisco (now called Mondelez), Carrier (this year) , Illinois Tool. Boeing has moved a parts plant to Mexico. Many airlines do their maintainence work there. (Yes, you are flying on planes maintained by non-U.S. workers.) The lure of low wages is irresistible to U.S. companies, considering there are no tariff costs. And the govt.-subsidized U.S. grain that flooded Mexico destroyed their farms, causing many more Mexicans to come north seeking employment. NAFTA has been a net loser for U.S. workers. That is a fact. And we are still allowed to vote here. Yes, the U.S. is a nation of immigrants, but that was LEGAL immigration.

Realist
Realist

Mish and others are correct. Automation (the result of a free market plus human ingenuity) has been changing the job market for hundreds of years, and it’s not going to stop. Agricultural went from 90% of all jobs to 2%. Manufacturing has shrunk from 26% in 1947 to less than 9% today. And it is moving to 2% over the next few decades no matter what Trump does. I find it interesting that so many people who declare themselves to be libertarian, free market types, then ask for government to “protect” their job somehow. As an individual, you need to take responsibility for your well being. That would include making sure you have all the experience, skills and education necessary to keep yourself employed.

whirlaway
whirlaway

"Of course it's not happening. That is not my claim. It's the claim of trade idiots who think that China will take the jobs and then raise prices."

Once the people's purchasing power is shot, prices don't have to increase in order for them to be screwed. If you are earning $1000, you might afford a $100 item but if your income falls, you might not be able to afford it even if it is sold for just $20.

whirlaway
whirlaway

Well, these are the same people who say that when wages fall, things get better for the workers! They have no credibility left.

KidHorn
KidHorn

Mish is right. NAFTA didn't cause the loss of manufacturing jobs. Automation cost way more jobs than NAFTA. I think most of the companies that went to Mexico would have left the US with or without NAFTA.

KidHorn
KidHorn

One thing I don't get is people who complain about Mexicans coming to the US for jobs and also complain about jobs going to Mexico. What do they want? Mexicans to starve to death?

Bill Fawell
Bill Fawell

Mish, you're a good guy and I like your site, but chart # 3 says NAFTA is sucking America dry. Can you imagine how much of the increase manufacturing seen in Mexico after 1994 should have remained in the USA? Don't believe me, take a look at your pro-NAFTA bashing chart... #3 Mish, #3.

philbq
philbq

Bill- you are right! The chart on car manufacturing shows that car production in Mexico increased dramatically after NAFTA. This is because U.S. car companies could now move production to Mexico, and re-import the cars into the U.S. tariff-free. The trade agreements are a Trojan Horse, sold as a stimulus to U.S. exports, but actually intended to allow U.S. companies to off-shore production and still re-import those products o the U.S. market with no tariff penalties. It is a corporate scam.

SMF
SMF

Government regulations and taxation caused quite a bit of damage as well. For those who care to research this too you can find how Los Angeles cleaned its smog problem by getting rid of industry. Don't forget that up to the mid 90s LA was the aerospace hub of the world.

Kinuachdrach
Kinuachdrach

Germ wisely wrote -- "When products are cheap, standards of living rise." But not for those who lost their jobs.

Kinuachdrach
Kinuachdrach

That is exactly the point! It is foolish to look only at the effect on prices without also looking at the effect on incomes. And the people who lost their jobs are getting subsidized by the US taxpayer in various ways -- further hurting the economy. Free Trade would be a wonderful thing -- but it sometimes seems like Kool-Aid to the true believers.

SMF
SMF

When prices go down, other people not affected by the loss of jobs have more $$ to spend. The reverse has also been used by governments to raise wages of public workers to unsustainable levels.

bradw2k
bradw2k

"NAFTA has been a net loser for U.S. workers."

Don't US workers BUY things? And do they like those things to be as inexpensive as possible -- or do they like to pay extra to cover non-competitive US wages and/or tariffs? See chapter 11 of this pdf book: https://mises.org/library/economics-one-lesson

Kinuachdrach
Kinuachdrach

NAFTA has been a net loser for US workers who lost their jobs. And a net winner for those lucky workers (many of them government employees) who managed to keep their jobs. Do the winners outnumber the losers -- or is it the other way around?

shamrock
shamrock

An amazing number of economic idiots in the comments section.

frozeninthenorth
frozeninthenorth

Wow cannot believe that Policy Option would write such stuff...That place has changed over the years. Also noted many of your commenters are agreeing with the article...considering how you started the thing on how stupid the article was...

Maximus_Minimus
Maximus_Minimus

A related question to jobs and earnings is this: did NAFTA let US/Canadian management avoid touch choices, i.e. explore robotisation early on. The Japanese did choose this route, and the products show this effort paid off.

CautiousObserver
CautiousObserver

Mish said: “...[trade tariffs] are set to exacerbate the next global recession...”

Isn’t that a little like saying, “Higher interest rates are set to trigger the next global credit collapse?”

Both statements are true but ignore the accumulated imbalances and underlying causes. In the case of trade, regulatory policies had to first reward companies for moving production to less expensive jurisdictions before US manufacturing could be hollowed out. In the case of global credit, central bank credit had to first blow asset price bubbles before a collapse could be triggered.

I do agree that a trade war is likely to blow up in the Trump Administration’s face. I would be interested in knowing if our host has ideas about the correct way for the US to become more competitive relative to other parts of the world.

Realist
Realist

CautiousObserver asked “what is the correct way for US companies to become more competitive?” The answer is definitely not through government protection, tariffs, subsidies etc. I believe that virtually everyone already knows the answer. To be competitive you must be at the forefront of technology these days. In twenty years, manufacturers will require almost no physical labour as automation will have taken over. Manufacturers will will build new facilities based on many factors, but the price of labour will be far down the list. Proximity to markets, suppliers, and raw materials will be much higher on the list. As will energy costs, and existing infrastructure such as transportation. Arguing that somehow eliminating or changing NAFTA is like rearranging deck chairs on the Titanic.

CautiousObserver
CautiousObserver

Hi Realist. I should clarify that my remark above does not refer to labor exclusively. Tech is an industry and not an economic policy. I doubt virtually everyone already knows the answer to my economic policy question. If they did, I do not expect the US would be on the unsustainable path that it is on.

Jordan Brennan
Jordan Brennan

Greetings Mike:

Jordan Brennan
Jordan Brennan

Greetings Mike: Before you go to the trouble of mischaracterizing my argument, it might be a good idea to read the entire article. You say that my evidence is at odds with my argument. It is not. Apparently you didn't even read the first full section of the article. The chart plotting manufacturing employment comes from a section entitled 'The Conventional Wisdom'. I strongly encourage you to read the entire article before commenting, if only to potentially save yourself from wasting time trying to knock over a straw man.

whirlaway
whirlaway

Yes, US workers buy things. But they have to borrow in order to pay for even the most basic needs. And this is the system that Mish and company say is "working" for the American people!

CautiousObserver
CautiousObserver

Thanks, Mish. I know you mentioned those policies before. It's hard for me to see how the budget deficit causes the trade deficit, but I do understand that the two are correlated. Lower prices do benefit consumers; I agree.