The Best Trade Agreement Is For Completely Free Trade, Same As Within The U.S.
First, watch this short video: Free Trade vs Protectionism
…
The U.S. should not focus on increasing U.S. exports but rather focus on
U.S. trade deficits (more imports than exports) are always balanced with the money coming back, largely through foreign investments in the U.S. which increases U.S. GDP and employment.
Any lost current jobs caused by deficits are more than made up for by lower consumer prices and creation of new jobs including via foreign investment in new businesses in the U.S.
…
In 2020 the U.S.-Mexico-Canada-Agreement (USMCA) superseded the North American Free Trade Agreement (NAFTA), but the reasoning of the following discussion of NAFTA still applies.
Mostly summarized from article “NAFTA 20 Years After - Neither Miracle nor Disaster”:
Bill Clinton made NAFTA a cornerstone of his 1992 presidential campaign, saying it would help level the playing field for U.S. businesses trying to sell their products abroad.
Opposing candidate Ross Perot predicted NAFTA would result in “a giant sucking sound going south” - the sound of American manufacturing jobs and factories being funneled into Mexico.
NAFTA went into effect on Jan. 1, 1994, which gives us 20 years’ worth of data on economic growth, trade volume, and employment.
…
The most basic measure of economic growth is gross domestic product.
Per Figure 1, since NAFTA was enacted in 1994:
· U.S. GDP has grown about 63 percent
· Canadian GDP has grown about 66 percent
· Mexican GDP has grown about 65 percent
Those growth rates are significantly better than the industrialized nations of the OECD (Organization for Economic Cooperation and Development) as a whole, whose composite GDP has grown about 53 percent since 1993.
(List of OECD nations here: http://www.oecd.org/.../list-oecd-member-countries.htm)
Many factors have contributed to North American countries’ economic growth, so NAFTA’s direct impact on GDP is difficult to measure.
…
Look at what NAFTA was specifically designed to do: increase trade.
In the early ’90s, the Clintonites promised free trade would create a more favorable environment for the U.S. to sell its goods and services.
Per Figure 2, since 1993 U.S. exports have climbed
· to Canada from about $125 billion to $360 billion
· to Mexico from about $80 billion to $240 billion
· total U.S. exports gain about $395 billion
…
Supporters said NAFTA would also trigger a rise in imports, leading to lower-priced goods and services for U.S. consumers and to more efficient and competitive U.S. companies.
Per Figure 3, since 1993 U.S. imports have climbed
· from Canada from about $140 billion to $360 billion
· from Mexico from about $60 billion to $300 billion
· total imports gain about $460 billion
...
Protectionists have complained about the bigger increase in total imports than in total exports.
Per Figure 4 the U.S. trade deficit with Mexico has grown dramatically since NAFTA
· from a trade surplus of about $4 billion in 1994
· to a deficit of about $54 billion in 2012
Recently, the U.S. deficits with Mexico and Canada have contracted as export growth has accelerated.
It’s difficult to say with certainty how much of the rise in trade between the U.S. and Canada and Mexico is directly attributable to NAFTA.
Trade liberalization among the U.S., Canada, and Mexico was already underway before NAFTA.
…
What about Ross Perot’s big fear, the labor market?
Estimates of NAFTA’s effect on U.S. payrolls vary wildly and depend on methodology.
Per Figure 5
Today, there are about 12 million manufacturing jobs in the U.S., down from about 17 million when NAFTA was enacted.
However, studies show about 80% of U.S. manufacturing job losses are due to production technologies advances, the other 20% are due in large part to jobs moving out of the country, but also due to rising preference for quieter, cleaner and safer service jobs.
Despite the manufacturing job losses, U.S. manufacturing production output from NAFTA’s start in 1994 to 2014 was up 42%.
Note increased imports have same effect as technology advances: higher quantity of and lower prices for goods.
…
Per Figure 6, as a nation’s economy progresses the labor force concentration naturally moves from agriculture to industry (manufacturing) to services.
…
In economic well-being terms (consumer satisfaction + business profits 
total surplus is what counts, not whether there is more or less exports or imports.
total surplus is what counts, not whether there is more or less exports or imports. “Surplus” means:
· on the consumer side, the price you would be willing to pay for a product minus the lower price you actually pay
· on the producer side, the price you sell product for minus your costs, i.e. your profit
Per Figure 7 example:
At first, with import restrictions on product X, total consumer+producer surplus = A (consumer) + B+C (producer)
Then, when import restrictions are eliminated, total surplus becomes A+B+D (consumer) + C (supplier).
Producer surplus has decreased from B+C to C, but consumer surplus has increased from A to A+B+D.
Net gain from free trade is D, the economy is now larger by D.
Note this is only for one product X, people who previously worked making X move to higher-paying jobs producing other more valuable goods and services, further enlarging the economy.
In the reverse case when other countries reduce import restrictions U.S. producer surplus increases more than consumer surplus decreases.
By logical extension the best trade agreement among all countries is unrestricted free trade with no tariffs, as is the situation among the states and territories of the United States.
Comments
Post a Comment