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Friday, October 9, 2015

Is Trump Right that NAFTA Was a “Disaster”?

Freer trade is a win for society as a whole

Assessing the consequences of NAFTA, Mark Thoma says, “For the U.S. – where the Bill Clinton administration sold the agreement as a job-creating policy because U.S. exports would grow by more than its imports – the agreement has not lived up to its promise” (“Is Donald Trump right to call NAFTA a ‘disaster’?” Oct. 5).

Disappointingly, Prof. Thoma writes as if he were a politician rather than the economist that he is. Politicians routinely sell freer trade as a source of net job and export creation. Yet economists since Adam Smith — and ranging across the ideological spectrum from Milton Friedman to Paul Krugman — have consistently rejected such claims as justifications for free trade.

Economists understand that freer trade neither increases nor decreases the total number of jobs in an economy. Instead, freer trade changes the kinds of jobs performed in an economy by shifting jobs from industries that are comparatively inefficient to industries that are comparatively efficient.

Likewise, the correct case for freer trade does not depend upon exports growing by more than imports. First, there’s no reason to expect freer trade to result in such an outcome. Second, such an outcome, should it occur, might well be lamentable for it could reveal that investment opportunities at home are consistently less attractive than are investment opportunities abroad.

Cross-posted from Cafe Hayek.

  • Donald J. Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, and a professor of economics and former economics-department chair at George Mason University.