Trade Agreements Trump Loves to Hate Actually Have Small Positive Effects

A Congressional Budget Office report shows that trade agreements have benefits, albeit uneven ones
From

Donald Trump.

Photographer: Spencer Platt/Getty Images

Over the course of the 2016 presidential election, trade has been thrust into the spotlight.

Republican presidential candidate Donald Trump described the North American Free Trade Agreement as “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country” during the first presidential debate on Sept. 26. The billionaire businessman then told Democratic presidential candidate Hillary Clinton that if passed, the Trans-Pacific Partnership would be “almost as bad as NAFTA.” Clinton has said she now also opposes the TPP, after initially supporting it.

So what is the truth about trade? According to a new report released by the nonpartisan Congressional Budget Office, the majority of economic studies agree that preferential trade agreements — defined as treaties that remove barriers to trade and set rules for international commerce between two or among a small group of countries — have had small positive effects on the U.S. economy.

NAFTA, an agreement that removed tariff barriers between the U.S., Canada and Mexico, was responsible for about 34 percent of the growth in trade from the two countries between 1992 and 1998, according to one study highlighted in the report, though other examinations found more modest effects.


Looking at total U.S. trade, NAFTA accounted for 7.5 percent of growth between 1992 and 1998, according to another study.

Productivity in the U.S. manufacturing sector has increased significantly over the past few decades due to competition introduced by trade, according to the report. Increased competition from overseas may push the least productive businesses to close, but new opportunities to sell products abroad allow efficient companies to expand and export. 

Still, trade isn't always unambiguously positive. Preferential trade agreements may have negative effects on employment in the near-term, as some workers are displaced and find themselves temporarily unemployed. Because expanding sectors have a greater need for workers, trade has little effect on employment over the longer term.

And while trade deals raise workers’ average real wages, the distribution across industries is unequal — which could be adding fuel to Trump's fire. Trade expansion harms wages for low-skilled occupations and manufacturing jobs the most.

"Trade displaced workers tend to earn markedly less once reemployed," according to the report. "Even though most displaced workers eventually find new employment, some workers displaced as a result of trade cannot, and they eventually stop working."

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