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Dear NAFTA Bashers: You Need New Charts

February 28, 2018

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4:35 am

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31 comments

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Economics

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 Economist says “Manufacturing jobs have disappeared and they are not coming back in significant numbers.”

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

The Slate correctly asserts Nothing Will Bring Back Manufacturing Employment.

“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”.

Also consider Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?

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

Mike “Mish” Shedlock

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Mish

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31 Comments

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8 years ago

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8 years ago

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8 years ago

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CautiousObserver

8 years ago

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.

Mish

8 years ago

The way to be competitive is to reduce the budget deficit. Budget deficits lead to trade deficits. But that involves pain. An even better way is to go back to a gold standard, but that involves even more short-term pain. Finally, we should simply embrace free trade. Lower prices are a benefit to consumers.

whirlaway

8 years ago

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!

Jordan Brennan

8 years ago

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.

Jordan Brennan

8 years ago

Greetings Mike:

CautiousObserver

8 years ago

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.

CautiousObserver

8 years ago

*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.

Maximus_Minimus

8 years ago

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.

frozeninthenorth

8 years ago

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…

shamrock

8 years ago

An amazing number of economic idiots in the comments section.

Kinuachdrach

8 years ago

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?

bradw2k

8 years ago

“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

SMF

8 years ago

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.

Kinuachdrach

8 years ago

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.

Kinuachdrach

8 years ago

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

SMF

8 years ago

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.

philbq

8 years ago

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.

Bill Fawell

8 years ago

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.

KidHorn

8 years ago

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?

KidHorn

8 years ago

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.

whirlaway

8 years ago

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

whirlaway

8 years ago

“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.

philbq

8 years ago

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.

Germ

8 years ago

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

Germ

8 years ago

“When products are cheap, standards of living rise.”

Greggg

8 years ago

A quick look at the 3 charts… Automation.

FelixMish

8 years ago

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.

Mish

8 years ago

“Neither is happening, but nice try Mish.”

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.

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Dear NAFTA Bashers: You Need New Charts

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