NAFTA costs U.S. manufacturing jobs, but so does China

Brent Snavely
Detroit Free Press

Whether it was Donald Trump on the right or Bernie Sanders on the left, the presidential election this year has put the North American Free Trade Agreement squarely in the crosshairs.

A sign announced the entrance to GM plant in Silao, Mexico, in this 1998 file photo

NAFTA, intended to boost exports and imports between the U.S., Canada and Mexico, managed to stay largely out of the limelight for 22 years. But it has emerged as the poster child for America's manufacturing job losses even though experts say the three-country trade deal is just one part of a much larger, more complex web of international trade.

GOP presidential nominee Trump and former Democratic presidential candidate Sanders harnessed voter anger over manufacturing job losses, castigating NAFTA as the culprit and vowing to replace it.

Why you should care about the TPP trade deal

While NAFTA has caused manufacturing job losses, the U.S. also has free trade agreements with 18 countries in addition to Canada and Mexico.

Meanwhile, the outsourcing of manufacturing jobs to China has had a much larger impact, even though the U.S. lacks a free trade pact with the Asian nation. What's more, drastic measures, such as pulling out of NAFTA, would not fix America's trade problems or restore manufacturing jobs lost to other forces such as automation.

Still, for many, NAFTA has been the most visible and direct cause of factory closures.

U.S. manufacturers employ about 4.5 million fewer workers  today than in 1994, when NAFTA became effective.

"I think workers are aware of NAFTA, they are aware of the phenomenon of outsourcing, they see their plants closing, and they blame it on NAFTA because that is what they know," said Robert  Scott, senior economist of the left-leaning Economic Policy Institute.

When NAFTA took effect in 1994, the U.S. boasted 16.8 million manufacturing jobs. As of July, there were 12.3 million. That’s down 27%, though the number has risen since bottoming out at 11.5 million in March 2011.

That slight rebound is of little solace for workers who see manufacturers moving work to Mexico.

"That is the angry middle class we have," Richard Dauch, CEO of Accuride, said when he spoke at an automotive conference in August. "The guys who can’t come out of high school anymore and get a good job and have a cabin 'up north.' They have to have two jobs, their wife has to work; they have to borrow a bunch of money to send their kids to college. It's got to come to a head at some point."

Just last month, bearing manufacturer Rexnord  said it would close a plant in Indianapolis  and move the work to Mexico, putting 295 members of United Steelworkers Local 1999 out of work.

Fiat Chrysler Automobiles stopped building its Dodge Dart in Belvidere, Ill. on Oct. 4 and will soon stop making the Jeep Patriot and Compass at that plant as production of an all-new Jeep Compass begins in Toluca, Mexico. Fiat Chrysler will keep its Belvidere plant open — it plans to begin building a new Jeep Cherokee there next year — but that doesn't eliminate the reality that Jeeps currently made in the U.S. will soon be moved to Mexico.

Trump has frequently criticized Ford for its decision to move production of its small cars to a new, $1.6-billion plant in the north-central Mexican state of San Luis Potosí even though no jobs will be lost from Ford's plant in Wayne, Mich.

Ford Motor Company opens its facility to celebrate its brand new 2012  Ford Focus built for North American customers in its  $ 550 million remodeled Michigan Assembly Plant in Wayne, Mich. Thursday, March 17, 2011. Workers are busy assembling the new automobile.
REGINA H. BOONE/Detroit Free Press

Ford workers recognize jobs won't be lost from that move but still have concerns.

"Of course we oppose them taking cars out of the country, but they are replacing that car with another vehicle," said Derrick Chitwood, 48, of  Ypsilanti, Mich., who works at Ford's assembly plant in Wayne. Mich.. "It's not like they are cutting jobs at Ford for us."

​Scott estimates that the U.S. lost more than 670,000 jobs as a direct result of NAFTA between 1993 and 2010. However, he said the U.S. lost more than 3.2 million U.S. jobs due to outsourcing to China over roughly the same period.

"It’s not just NAFTA, it’s China, it’s trade with Japan, it’s the other Asian countries that are proposing to join us with TPP," Scott said.

Others argue it's nearly impossible to put a number of the number of jobs the U.S. lost because of NAFTA because the U.S. joined the 164-member World Trade Organization in 1994. That trade organization operates a system of trade rules, but is a far more basic umbrella organization designed to help countries sort out trade problems than the more robust treaties that nations sign with each other.

"NAFTA precedes WTO by one year," said Marc Busch, a professor of international business at Georgetown University who served as an adviser to Marco Rubio's presidential campaign. "So it is really hard to separate the effects of NAFTA and WTO."

Busch also says Trump's idea to impose a 35% tariff on cars imported from Mexico is an empty threat.

Why? Because under the rules of the World Trade Organization the U.S. president — or any other country or world leader — is barred from unilaterally imposing a punitive tariff that targets a specific country.

"That violates the most favored nation principle that bars unequal treatment of individual nations," Busch said.

The U.S. could, with six months' notice, withdraw from NAFTA. But it's unlikely any U.S. president would do that because it wouldn't lead to increased exports or fix currency issues, or lead to a restoration of American jobs.

"It would be pretty negative (for the U.S. economy) because it would not address our fundamental trade problems," Scott said. "All it does is raises cost of imports."