Donald Trump reiterated yet again in his first debate with Hillary Clinton that NAFTA was the worst trade deal in American history and that he would renegotiate much better trade deals, although he failed to give any details as to how he was going to do that. Trump, as well as many far left Democrats, have repeatedly stated that NAFTA has killed millions jobs and is the primary culprit for most of our economic woes. Trump and his anti-free trade supporters are incorrect.
To clarify, I should say that this is incorrect on a macroeconomic level. I’m sure some of you can tell a story or two about a U.S. plant that closed and moved its operation to Mexico; however, that was already happening in the 1980s, before NAFTA was even a glint in George H.W. Bush’s eye (his administration negotiated it, not the Clinton Administration; Clinton just signed it). But nationwide, manufacturing jobs increased after the implementation of NAFTA; they did not decrease. According to The U.S Bureau of Labor Statistics, U.S. Manufacturing Jobs, Month-by-Month, 1939-2016, in December 1993, when NAFTA was signed, the U.S. had 16.8 million manufacturing jobs; and according to U-3 Unemployment rate, Month-by-Month, 1948-2016, the overall unemployment rate was 6.5%. Throughout the rest of the Clinton years, manufacturing jobs would go on exceed 17 million as early as 1994, and the unemployment rate would steadily fall to 3.9% by the end of the decade, adding over 20 million total jobs to the U.S. economy. Granted, manufacturing jobs didn’t grow by much, but they didn’t decline, either. And the competition for manufacturing jobs came primarily from China, not Mexico.
In 2002, George W. Bush did the opposite of a free trade agreement. In an effort to protect the struggling U.S. Steel industry and win over union voters in the upcoming presidential election, Bush placed a protective tariff on steel, mostly at a rate of 30% (http://usatoday30.usatoday.com/money/general/2002/03/05/bush-steel.htm). According to Donald Trump’s ideology (he has often suggested increased tariffs on China and Mexico), such a move should have increased manufacturing jobs throughout our great nation. It didn’t. Manufacturing jobs fell from 15.4 million in March of 2002 to 13.4 million by August, 2008 (and that was a month before the banking fiasco triggered an economic collapse).
While the steel industry loved the tariff, industries that used steel to manufacture everything from furnaces to bicycles to construction beams, hated it, because it hurt them by raising the cost of raw materials used in production. Also affected was the auto industry. Of course, we all know what happened in 2008-2009 to the auto manufacturers – they needed bailouts. While various factors played a role in their near demise, increased prices on steal didn’t help. And this is why such tariffs are harmful. Steelworkers may have lost jobs up front without the protective tariffs, but there were far more American companies and employees who manufactured with steel than there were steel manufacturers, and the tariffs hurt their ability to compete on price. What’s ironic is that if it weren’t for the government bail out of the auto-makers, they would have gone out of business, leaving the steel manufacturers fewer clients to sell to, thus ultimately killing steel jobs after all.
Once upon a time, it was the progressive Democrats who believed in free trade, while Republicans opposed it. The original progressives of the 1890s and early 1900s, led by Christian pastor and three-time presidential nominee, William Jennings Bryan, called the tariff system of the time “a subsidy from the poor to the rich.” Bryan campaigned for replacing the tariff system with income taxes on the wealthy, because tariffs on imports were (and still are) paid for by the consumer when they buy the end product. And when tariffs are high, U.S. manufacturers can charge higher prices to consumers, thanks to the lack of competition. So, in a tariff system, consumers pay higher prices than necessary and bear the bulk of the U.S. tax burden, while the wealthy pay much smaller percentages of their incomes to taxes and make more money from being able to overcharge customers.
Woodrow Wilson was the first president to greatly reduce protective tariffs. But after the 1929 stock market crash, Herbert Hoover and a Republican Congress implemented the Smoot-Hawley Tariff of 1930, an act that many economists see as a major contributor to the severity of the Great Depression, which was just a recession when the tariff became law. Other nations responded by placing reciprocal tariffs on US goods, thus hurting industries that had not yet been hurt by the recession. And the increased cost of raw materials added to the cost of production and greatly burdened businesses. The Republicans blew it, and the anti-tariff Democrats took over in 1932, controlling the House of Representatives for 60 of the next 64 years.
As for countries seeking revenge with reciprocal tariffs, what you get worldwide is the cost of goods and materials being prohibitively high, making nearly all products more expensive, thus decreasing their availability. In other words, there’s less to go around for everyone, increasing the need throughout the world. Tariffs create poverty. Everyone in the whole world is created in the image of God; therefore, no one should suffer due to protective tariffs. It’s hypocritical for so-called progressives to accuse the American wealthy of rigging the system so they don’t have to share their riches with the rest of us and then actually advocate that we rig the tariff system so we Americans don’t have to share our riches with the rest of world.
I think this is why President Obama favors the Trans Pacific Partnership. I’ll admit, I don’t know everything that’s in it. But, generally, free trade is good for everyone in the long run. The Chinese are developing their own free trade agreement and alliance with India and 14 other countries than will make it even cheaper for them to produce goods and undercut our prices. So we are competing by effectively adding Japan, South Korea, Australia, Chile and others to the NAFTA alliance. As we move into the future, individual countries won’t be able to go it alone. Alliances will be essential to survival.
I trust Obama on this far more than I trust Trump. Obama is an intellectual, just like Woodrow Wilson and Franklin D. Roosevelt. Trump is an emotionalist who stokes anger by placing the blame for our problems on chosen scapegoats. He differs little from Ron Paul. Their campaigns are about getting people to shake their fist at the government, even their own party, rather than doing their homework on how to create intelligent solutions for complex problems. And unfortunately, a lot of working class progressives are now falling for their deception. Don’t get me wrong. I believe in progressivism. But true Democratic progressivism favored free trade, because it’s cheaper for consumers and actually increases jobs nationwide. It’s not the simplest thing to understand, but it’s easy enough for anyone who’s willing to take a few moments to look at the macroeconomic realities and numbers. Hopefully, progressive leaders of the future will do what’s right for the working class and not just promote what sounds good to the uneducated mind.