NAFTA faces a rough road in wake of U.S. election

Canadian leaders need to be prepared to defend NAFTA and its economic value whoever wins the U.S. presidential election

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Gwyn MorganWhatever the outcome of the tumultuous U.S. presidential election, the North American Free Trade Agreement (NAFTA) will come under pressure.

Republican candidate Donald Trump has asserted that NAFTA has caused the loss of thousands of manufacturing jobs to Mexico. And concessions to Bernie Sanders, the left-leaning runner-up in the Democratic primaries, pushed Hillary Clinton to take a less than supportive position on free trade.

NAFTA has been under attack for years. The Economic Policy Institute, a pro-union American organization, in 2013 published an article that stated: “By establishing the principle that U.S. corporations could relocate production elsewhere and sell back into the United States, NAFTA undercut the bargaining power of American workers. … The result has been 20 years of stagnant wages and the upward redistribution of income, wealth and political power.”

This rhetoric has found particularly fertile ground in high-job-loss states close to Canada, including New York, Pennsylvania, West Virginia, Ohio, Indiana, Michigan and Iowa.

But the reality is employment and wages were in decline in those states well before NAFTA was signed in 1994. Once known as the Steel Belt due to its huge steel and coal industries, the region was renamed the Rust Belt when it couldn’t compete with burgeoning iron and steel producers in China, Japan and South Korea.

It was also once the epicentre of the American auto industry. But a second economic shock came with the shutdown of many auto plants, plummeting Detroit and other cities dependent on the industry into an economic and social abyss.

But while Trump blames NAFTA partner Mexico, the reality is that many Rust Belt job were lost because auto production was moved to more efficient and competitive non-union plants in the Carolinas.

The claim of “unfair” competition from Mexico and, to a lesser degree, Canada is the central tenet of anti-NAFTA arguments. However, the reality is that the overall rate of U.S. manufacturing job losses due to plant closings between 1994-2000 showed little deviation from the years prior to the implementation of NAFTA.

More significantly, U.S. industrial production grew almost 50 per cent in the decade after NAFTA was signed, while the previous decade saw growth of just 28 per cent.

Since 2000, American manufacturing jobs have declined from 17 million to 12 million. Trump and Sanders blame China and Mexico for undercutting American workers with cheap labour.

But there’s another very big reason for the loss of jobs, and it also applies in Canada: technology. Today’s automated manufacturing plants require far fewer workers. And those workers must have greater skill, for which they are more highly paid.

At the same time, older low-skill workers like many in the Rust Belt see declining wages, if they can get work at all. The result is the anger and hopelessness that Trump has tapped into.

Paradoxically, new automated plants save jobs because they’re the only way to compete in a global economy. And all of the anti-free-trade rhetoric won’t change that.

Michigan State University economist Charles Ballard says, “Even if you did what Trump says (that is erect trade barriers) you wouldn’t reverse the technology which is a very big part of the picture.” This helps to explain why U.S. manufacturing output has grown by some 40 per cent since 2000 even as manufacturing jobs fell by 30 per cent.

It’s no wonder Trump’s campaign focused on manufacturing job losses, because the nation’s overall job story paints a starkly different picture. Unemployment rates soared to almost 10 per cent in the aftermath of the 2008 financial crisis, but have since fallen below five per cent. This makes Trump’s assertions of job losses and stagnant wages, and the support he has garnered for those assertions, difficult to fathom.

The reality is that employment and wage levels are much more robust than they were during the past two presidential elections.

It’s normal for the party trying to gain power to focus on what’s wrong rather than what’s right. But even if he loses, Trump’s negative and untruthful campaign means free trade will remain under attack long after the election.

It will be a dangerous time for Canada, since any reduction in access to our dominant trading partner would have very serious economic implications. For Canadian business and government representatives who must engage in that debate, it’s important to be armed with the facts.

They need to be prepared to deal with the pressure NAFTA inevitably will face.

Gwyn Morgan is a retired Canadian business leader who has been a director of five global corporations.

Gwyn is a Troy Media Thought Leader. Why aren’t you?

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Gwyn Morgan

Gwyn Morgan has become one of Canada’s foremost business leaders and an ardent champion of the importance of Canadian-headquartered international enterprises. Gwyn has served on the board of directors of five global corporations. He serves as a trustee of the Fraser Institute, the Manning Centre for Building Democracy and the Dalai Lama Center for Peace and Education.
He devoted three decades to building EnCana Corp. into Canada’s largest energy company. When he stepped down as founding CEO at the end of 2005, EnCana was Canada's most valuable company with a stock market value of approximately $60-billion. Gwyn has been recognized as Canada’s Outstanding CEO of the Year and also as Canada’s Most Respected CEO. He has been inducted as a Member of The Order of Canada.

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