The Republican Party’s presumptive nominee for the presidency of the United States, Donald Trump, has made one of his recurring themes the supposedly negative effects of the opening up of borders, and especially of trade between the United States and Mexico. He claims that free trade does not benefit the United States. According to Trump, NAFTA is “a disaster” that needs to be renegotiated — an opinion possibly shared by 34 per cent of Canadians who, according to a recent Angus Reid poll, want the treaty renegotiated.
Even though nearly all of the rest of Donald Trump’s program is unpopular in Canada, opposition to free trade clearly finds a certain echo here. The truth of the matter, though, is that this agreement has had positive effects for the three countries involved.
Generally speaking, the liberalization of trade brings lasting benefits at the cost of certain short-term inconveniences. This is one of the uncontestable conclusions of economic analyses, agreed upon by practically all economists. Free trade increases well-being in the countries concerned thanks to falling prices and efficiency gains.
These effects were observed following the entry into force of NAFTA in January 1994. Labour productivity increased across North America. In Canada, it increased by an estimated 14 per cent, a huge leap. In terms of value, American trade with Canada and Mexico increased from US$481 billion in 1993 to US$1.1 trillion in 2015. And while Donald Trump claims that Americans “don’t make anything anymore,” the American manufacturing sector has actually increased production by 58 per cent since the deal came into effect.
There’s no question that, as Donald Trump likes to repeat, there are far fewer jobs in the manufacturing sector in the United States than there used to be — 29 per cent fewer than before NAFTA, in fact. Some of these jobs disappeared at less efficient companies with higher production costs than their new competitors. For others, this change is mainly due to technical innovations that increase productivity, thus allowing the general standard of living to rise.
Over the 10 years immediately after NAFTA came into force, the opening up of borders was by itself responsible for an increase in real wages in firms affected by the deal of 0.32 per cent in Canada and of 0.11 per cent in the United States. NAFTA also led to the creation of more jobs in exporting industries, which pay wages that are 15 to 20 per cent higher on average than industries that focus on domestic production.
These data don’t capture all of the effects of free trade, however. In many cases, imports stimulate domestic production instead of replacing it. Around 25 per cent of American imports from Canada are products of American design, or that were assembled or processed there, and then re-imported. In the case of American imports from Mexico, this figure climbs to 40 per cent.
The effect of NAFTA on the Mexican economy, which struggled for a long time, is also often overlooked in these debates. Freer trade under this agreement reduced the price of many consumer goods by half in just a few years, which has helped improve the still precarious living conditions of many Mexicans. The World Bank estimated in 2004 that NAFTA had lifted three million Mexicans above the poverty line.
Free trade pacts have an undeniably positive economic effect on their members. If Donald Trump wants to negotiate “a better deal” for the United States, it should be an agreement that liberalizes trade even further.
Mathieu Bédard is an economist at the Montreal Economic Institute and the author of “NAFTA: Donald Trump’s Criticisms Are Unfounded.” The views reflected in this op-ed are his own.