Both Senator Clinton and Senator Obama are telling voters in Ohio that they would change NAFTA. I’m sure with the unemployment rate at 6 percent, workers in Ohio are upset. But is NAFTA the cause of the economic woes in Ohio? I’ve drawn a graph of the state’s unemployment rate from 1993 through 2007 as a way of beginning this discussion. First observation: the unemployment rate in Ohio declined after NAFTA was passed. OK, the national unemployment rate declined during the 1990’s boom. But the subsequent rise in Ohio’s unemployment rate coincided with a rise in the nation’s unemployment rate.
The first problem with what the candidates have been saying is that Ohio’s troubles haven’t really been caused by trade agreements. When Nafta took effect on Jan. 1, 1994, Ohio had 990,000 manufacturing jobs. Two years later, it had 1.03 million. The number remained above one million for the rest of the 1990s, before plummeting in this decade to just 775,000 today. It’s hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed. A more important cause of Ohio’s jobs exodus is the rise of China, India and the old Soviet bloc, which has brought hundreds of millions of workers into the global economy. New technology and better transportation have then made it easier for jobs to be done in those places and elsewhere. To put it in concrete terms, your credit card’s customer service center isn’t in Ireland because of a new trade deal.
But it’s not just job losses that matter. If one loses a high paying job only to take another job with lower pay, that will not show up in the unemployment statistics but it will mean one’s real wages have suffered. But is this from trade with Mexico or is this from the rise in imports from the rest of the world? Mark Thoma weighs in:
if you go along with the idea that we should use social insurance programs to protect workers but not jobs, then this gives a means of evaluating candidate’s trade proposals that doesn’t depend upon whether the changes are driven by technology, globalization, or some other shock. To what extent does a particular proposal protect jobs and hence inhibit needed flexibility of the labor market? To what extent do the proposals compensate for job flexibility and the insecurity that comes along with it by protecting workers who have been displaced? Do the proposals cause firms to fully internalize the costs of their employment decisions? What types of incentives are built into worker protection programs, i.e. do workers still retain the incentive to seek out and accept new employment? Workers in Ohio and elsewhere are feeling the effects of something – I think the story above is basically correct but does not place enough emphasis on technological innovation as a cause of recent labor displacing change – but debate over the cause of their troubles shouldn’t delay the implementation of policies that could help now.
This is very well said! But let’s go back to Mr. Leonhardt’s very interesting discussion:
But when you read this plan, or Mr. Obama’s trade agenda, you discover none of it is particularly radical. Neither candidate calls for a repeal of Nafta, or anything close to it. Both instead want to tinker with the bureaucratic innards of the agreement. They want stronger “labor and environmental standards” and better “enforcement mechanisms.” It’s a bit of an odd situation. They call the country’s trade policy a disaster, and yet their plan to fix it starts with, um, cracking down on Mexican pollution. The question this raises is what Mr. Obama or Mrs. Clinton would really do about Ohio’s troubles if one of them became president — and whether it would make a difference … Here, finally, is where we get to the good news about the Ohio campaign. Mr. Obama and Mrs. Clinton favor all these ideas. They both want to invest in infrastructure, science and alternative energy, and they both want to cut taxes for everyone but the affluent. Mr. Obama, in particular, has proposed a cut in payroll taxes, perhaps the most regressive part of the tax code.
Within the last month, a top staff member for Obama’s campaign telephoned Michael Wilson, Canada’s ambassador to the United States, and warned him that Obama would speak out against NAFTA, according to Canadian sources. The staff member reassured Wilson that the criticisms would only be campaign rhetoric, and should not be taken at face value. But Tuesday night in Ohio, where NAFTA is blamed for massive job losses, Obama said he would tell Canada and Mexico “that we will opt out unless we renegotiate the core labour and environmental standards.” Late Wednesday, a spokesperson for the Obama campaign said the staff member’s warning to Wilson sounded implausible, but did not deny that contact had been made. “Senator Obama does not make promises he doesn’t intend to keep,” the spokesperson said. Low-level sources also suggested the Clinton campaign may have given a similar warning to Ottawa, but a Clinton spokesperson flatly denied the claim.
Those on the right would have us believe that Obama is a dangerous protectionist. Maybe he won’t be as President. And maybe he’ll take seriously the list of very good ideas to address Ohio’s economic woes – at least more seriously than this current Administration.
Update: Andrew Ward and Daniel Dombey report that the Canadian and Mexican governments are not happy with all this NAFTA noise:
Mexico and Canada on Wednesday voiced concern about calls by Barack Obama and Hillary Clinton to renegotiate the North American Free Trade Agreement, as the Democratic presidential hopefuls compete to adopt the most sceptical stance towards free trade ahead of next week’s Ohio primary election.
Daniel Drezner notes:
Democrats cannot simultaneously talk about improving America’s standing abroad while acting like a belligerent unilateralist when it comes to trade policy.
Daniel goes onto to say that Clinton and Obama are not “out-and-out protectionists”. Let’s hope not. But I have to wonder if Lou Dobbs is elated that the Mexican government is upset. And there are a few members of the Republican Party who seemingly love to attack our neighbors as well. This Democrat, however, would hope my party leaders avoid such bad habits in the future.
Update II: Things have gotten childish between Clinton and Obama. A union supporting Senator Clinton is now attacking Obama for the following reason:
According to a report on CTV Television Network, a senior member of Sen. Barack Obamas (D-IL) campaign staff contacted Canada’s ambassador to the U.S. earlier this month and warned him that the senator would be taking strong positions against the North American Free Trade Agreement (NAFTA), but that it was only campaign rhetoric and should not be taken seriously. I am appalled but not surprised by this report, said IAM International President Tom Buffenbarger. Working families cannot trust a candidate who telegraphs his real position to a foreign government and then dissembles in a nationally televised debate.
Even though the Canadian government denies that there was such a contact.
Hat tip to Greg Sargent who notes:
it’s worth keeping in mind that Buffenbarger apparently has little difficulty speaking his mind when it comes to Obama. He recently denounced Obama supporters as “latte-drinking, Prius- driving, Birkenstock-wearing, trust fund babies” and said that Obama wouldn’t “last a round against the Republican attack machine.”
Fellows?! You’re giving the Republican attack machine a loaded gun.