On October 11, NAFTA renegotiations will recommence between the U.S., Mexico, and Canada. The free trade agreement has come under a lot of criticism, not least from President Trump, who repeatedly links NAFTA to American job losses and trade deficits with Mexico. These criticisms are largely unfounded, particularly considering the benefits that free trade have brought to Texas.
Texas exported about $95 billion worth of products to Mexico in 2015, representing 37 percent of total state exports and an increase of 30 percent since 2010. Texas’ second largest export destination is Canada at $25 billion in 2015. In total, according to the U.S. Department of Commerce, the U.S. has free trade agreements with 20 countries, accounting for $62 percent of Texas’ annual exports. Since 2005, exports from Texas to these markets grew by 93 percent. Texas benefits in particular from NAFTA, with 387,000 jobs supported directly by exports to Canada and Mexico.
NAFTA may not be perfect, but it is wrong to blame the agreement for American manufacturing job losses. Manufacturing facilities have been moving locations for decades. Corporations frequently move their facilities within the U.S. to take advantage of a better business climate, or a more skilled workforce. Economic trends shift over time and successful businesses respond accordingly. Textile factories fled labor unions in New England in the 1920s, the auto industry left Detroit starting in the 1950s, and the steel industry largely vacated Pittsburgh starting in the 1970s. A recent study by Ball State University attributed 90 percent of manufacturing job losses in the U.S. to productivity gains, noting that “had we kept 2000-levels of productivity and applied them to 2010 levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million.”
In fact, far from free trade being the culprit, overbearing federal and state regulations have had a clear a deleterious impact on the U.S. economy. A 2016 report by the Mercatus Center concluded that from 1977 to 2012, federal regulations reduced the United States’ rate of economic growth by 0.8 percent annually. Put another way, if the cost of compliance with federal regulations had remained at the 1980 level through 2012, the U.S. economy would have been 25 percent larger than it is. In real terms, that amounts to $4 trillion of lost economic growth, or about $13,000 per capita. The cost of federal regulations to Texas is the 6th highest in the nation, 29% higher than the average impact.
It would be sensible for the U.S. to make it easier for workers to adjust to the changing landscape of manufacturing employment, but the federal tax code works in the opposite direction. The deduction for work-related education, for example, allows a worker to deduct education and training expenses so long as it relates to his current job, but not if he wants to train for a new career. Combine these types of disincentives with the 11th highest minimum wage among developed countries, a workforce that is highly regulated through robust occupational licensing schemes, numerous employment protection laws, and the rejection of “right to work” legislation in 24 of the 50 states, and it becomes clear that reforming these areas would make the entire economy more competitive and would put U.S. businesses on a more level playing field with our trading partners.
On October 11, as NATFA talks recommence in Washington, the Texas Conservative Coalition Research Institute (TCCRI) will host a Trade Summit in San Antonio featuring Texas Railroad Commission Chairman Christi Craddick, Texas Secretary of State Rolando Pablos, State Senator Donna Campbell, State Representative Jason Isaac, and private sector experts. The discussion will focus on the potential impact of NAFTA renegotiation on the Texas economy, as well as what steps the state can take to remain as competitive as possible.