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This is where NAFTA hurts American workers the most

Rick Newman
Senior Columnist

Most Americans never notice how free-trade deals affect them. Such deals usually push prices down and save consumers a few bucks over time. But the changes are incremental and slow.

Some people, however, feel an abrupt impact from free-trade deals, especially when companies move work out of the United States to a country where costs are lower. People who feel they’ve been economically harmed by trade have an unusually loud voice in this year’s presidential election, with Republican nominee Donald Trump vowing to undo trade deals that have been in place for years. In particular, he has targeted the North American Free Trade Agreement, which was negotiated by Republican President George H. W. Bush in the early 1990s. It went into effect on January 1, 1994, while Democrat Bill Clinton was president.

While opposed by labor groups, NAFTA generally enjoyed bipartisan support—until Trump started going after it, joined by former Democratic presidential candidate Bernie Sanders. NAFTA has allowed many manufacturers, including automakers, to build products in Mexico at lower costs and compete more effectively with rivals from Asia and elsewhere. But it has also shifted some work out of the United States, with workers left to find new jobs in different industries or locations. The turbulent and stagnant economy of the last 15 years has made finding decent-paying new jobs difficult or impossible for an important subset of the American workforce that feels it is falling behind.

New research published in the “Review of Economics and Statistics” provides a picture of the workers and regions harmed and helped most by NAFTA. Economists John McLaren of the University of Virginia and Shushanik Hakobyan of Fordham University used Census data to estimate the effect of NAFTA on wages in every region of the United States. They also analyzed incomes for four different educational groups—high school dropouts, high-school grads, those with some college, and college grads—to determine which types of workers were hurt and harmed most.

High school dropouts suffered the most, not surprisingly, with the pain concentrated in southeastern states such as Georgia, the Carolinas and Alabama. In the worst instances, pay for such workers grew 7% less than that for an average worker from 1990 to 2000. Some workers benefited from the trade deal, including less-educated workers in farm and energy states such as Kansas, Oklahoma and Missouri. Their pay grew as much as 9% more than that for an average worker.

This interactive map, constructed by Graphiq for Yahoo Finance from the researchers’ data, shows in detail how workers in each educational group fared on account of NAFTA between the years 1990 and 2000. Dark-shaded areas are where workers were harmed the most, with light-shaded areas being those where workers benefited or were harmed the least. The numbers on the scale represent the percentage by which wage growth for workers in each area trailed or exceeded the average.

These numbers are based on the 1990 and 2000 Census surveys, and even though they’re dated, they still present the most detailed view so far of how NAFTA has impacted communities across the United States. For the 2010 Census, the government collected data in a more limited way that makes it difficult to present the same comprehensive overview of the effects of NAFTA for subsequent years. These region-by-region snapshots of NAFTA’s effects complement similar research by a separate team of economists on how a surge of imports from China during the last 25 years has affected American communities.

Other research on NAFTA has found that the deal caused a huge increase in trade flows between the United States, Canada and Mexico, with Mexico benefiting the most. But the net gain to the US economy seems to be small. One of the most authoritative studies estimates that NAFTA improved the overall economic well-being of the United States by just 0.08% from 1993 to 2005. “Trade between the United States and Mexico increased a lot,” McLaren says. “There are efficiency benefits that come from large corporations being able to put their production where it can be most efficiently done. But there’s also a substitution of lower-cost foreign workers for higher-cost American workers. That’s the part a lot of people worry about.”

The new research by McLaren and Hakobyan doesn’t specify why wages fell or rose by more than average in areas most affected by the deal. But it’s possible to infer some reasons. Southeastern states probably lost jobs when protective tariffs on textiles disappeared under NAFTA, for instance. As workers lose their jobs, they often seek employment in different fields where they earn less. As their income falls, they have less money to spend locally, which can harm workers who aren’t even employed in the industry that has lost tariff protection. A diner waitress in a textile town would probably earn less in tips, and maybe even get fewer hours, as the textile work dries up.

Parts of Idaho seemed to have been harmed by NAFTA, probably due to certain industries once concentrated there. The Rust Belt, by contrast, seems little affected by the trade deal, perhaps because union power was able to protect jobs and wages during the decade in question. Automakers, especially Ford, have caught direct fire from Trump for new investments in Mexico, although Trump is wrong when he says the automakers are moving American jobs there. In reality, US employment is stable in the auto business.

Identifying regions harmed by NAFTA doesn’t make the case for rolling back the trade deal. Instead, it can provide insight for policymakers who want to keep trade deals in place, but do a better job of helping those hurt by open borders. That’s one idea neither presidential candidate has talked much about. Perhaps they should.

Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.