Griswold on NAFTA, Manufacturing, and Ohio

by Don Boudreaux on March 1, 2008

in Trade

In today’s Wall Street Journal, Dan Griswold, the outstanding trade scholar at the Cato Institute, exposes Clinton’s and Obama’s anti-trade yammerings in Ohio for what they are: ignorance informed only by the grotesque desire to win political office by pandering to many voters’ delusions.

Here are some key passages:

But tinkering with a 14-year-old trade agreement [NAFTA] will
not bring an industrial renaissance to Youngstown and other Rust Belt
cites. The relative decline of those regions dates back to the 1960s
and 1970s, when the American economy began a transition from heavy
industry toward an information-based service economy.

Ohio workers would pay a heavy price for pulling out
of Nafta. Canada and Mexico are the top two markets for exports from
Ohio, accounting for more than half of the state’s exports in 2006.
According to the Ohio Department of Development, 283,500 workers in the
state earn their living in the export sector, with machinery, car
parts, aircraft engines and optical/medical equipment among the leading
exports. A trade showdown would put those good-paying jobs at risk.

Since Nafta took effect on Jan. 1, 1994, the U.S.
economy has added a net 26 million new jobs. The average real hourly
compensation (wages and benefits) of workers has climbed 23%. Real
median household net worth has increased by a third. Of course, Nafta
was not the primary driver of all that good news. But it is a useful
counterpoint to the sense that large numbers of Americans have been
"devastated" by Nafta and other trade agreements.

In recent years, U.S. manufacturers have enjoyed record
output, revenue, exports and profits. Since Nafta, U.S. manufacturing
investment in Mexico has averaged a modest $2 billion a year — a tiny
fraction of the $150 billion or more those same companies invest
annually in domestic manufacturing capacity. American factories
actually added a net half-million new manufacturing jobs in the five
years after Nafta.

The loss of manufacturing jobs in Ohio and elsewhere
since 2000 is the result of increased automation and our own domestic
slowdown. U.S. factories are producing more and better stuff with fewer
workers because their workers have become so much more productive.

Behind this trend has been a shift of production down
South to nonunion, right-to-work states, and up the value chain to more
technology-intensive products. After 15 years of expanding trade, U.S.
factories today are producing fewer shirts, shoes and lower-end
auto-parts, and more pharmaceuticals, chemicals, semiconductors and
sophisticated machinery and equipment.

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