Trump’s Dumb War on Nafta | Bloomberg View

Bloomberg editorial view:

America’s trade pact with Mexico and Canada reshaped all three economies, creating a highly integrated and competitive economic zone. The evidence is clear that, in the aggregate, this helped American workers — and not just because Nafta and other free-trade agreements make goods cheaper and promote U.S. exports. A subtler point is equally important: When a U.S. firm takes advantage of Nafta by moving jobs abroad, those investments spur demand for workers at home.

This surprising and little-understood benefit isn’t theoretical speculation. On average, the evidence shows, when U.S. manufacturers create 100 new jobs in Mexico, they create roughly 250 new jobs at home. U.S. manufacturing employment has declined over the years — but, as one study of Nafta puts it, more manufacturing jobs are lost from companies that don’t invest abroad. When U.S. companies build foreign plants, they not only hire more U.S. workers, they also invest and spend more on research and development — at home.

This striving for success in a connected global economy is disruptive: Some workers lose in the process, even as others (in larger numbers) gain. So the U.S. needs a stronger social safety net, better schools, more support for training and worker mobility, subsidies for low-wage employment and other measures. Sheltering U.S. firms from competition with import barriers, or blocking their foreign investments with threats or other interventions, will make them less competitive — and make Americans overall worse off.

NAFTA is not to blame for poor economic growth in the US. It’s open to debate whether the evidence presented in this article is correct, but imposing tariff protection is seldom the answer. It’s often a case of short-term gain, long-term pain as protected industries lose competitiveness.

Source: Trump’s Dumb War on Nafta – Bloomberg View

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