Quora Question: Will a NAFTA Repeal Bring Back Jobs?

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Answer from William Murphy, Professor of American history:

The net impact of repealing NAFTA would not lead to an increase in jobs. It is possible that, over the long term, some jobs that were lost will come back, if in addition to repealing NAFTA the federal government put high tariffs on goods imported from Mexico and Canada. Repealing NAFTA does not by itself impose tariffs; it just eliminates a three-way agreement about what trade regulations, including tariffs, will be between the three member nations.

Here's the thing about imposing a tariff, though; it usually results in retaliatory tariffs placed on your own goods. This is exactly what trade agreements were developed to avoid; the members of an agreement agree that neither side will impose new tariffs on imports from the other members. Once you take that away, you return to the days of trade wars and retaliatory tariffs.

So let's say that Trump withdraws from NAFTA. And then let's say he gets Congress to put high tariffs on goods imported from Mexico. If these tariffs are high enough, they might lead some manufacturers to return some jobs to the U.S. But for that to happen, the cost of the tariff would have to outweigh the difference in labor costs between the U.S. and Mexico. Corporations do not ultimately bear the costs of tariffs; consumers do, in the form of higher prices. So the idea is that, since prices of goods imported from Mexico would now be higher without NAFTA and with new tariffs in place, some companies might find it cheaper to make goods in the U.S. than they are currently making in Mexico. But that will only be the case, again, if the tariffs are high enough to balance out the difference in labor costs. In order for American-manufactured goods to be cheaper than those made in Mexico, the tariff on goods from Mexico would have to be pretty high, because Mexican workers make a lot less money than American workers do.

But here's the thing: the U.S. still manufactures a lot of stuff, and a lot of that stuff is exported to other countries, including Mexico. If the U.S. puts high tariffs on goods from Mexico, then Mexico will put high tariffs on goods from the U.S.

So let's take the automotive industry as an example. Most cars sold by the big three American automakers are still actually manufactured in the U.S. But many of the parts suppliers those car makers depend upon make their parts in Mexico. Right now, those car parts are cheaper to manufacture in Mexico, because labor costs are lower and NAFTA guarantees no significant tariffs between the U.S. and Mexico. So the parts are made in Mexico and imported by the U.S. auto industry, which they use to make cars here that they sell to American customers. But many cars sold in Mexico are also manufactured in the U.S. and exported to Mexico. So if the U.S. withdraws from NAFTA and puts high tariffs on goods from Mexico, and Mexico responds by putting high tariffs on goods from the U.S., those parts manufacturers would have to decide whether it would make more sense to move production back to the U.S. If they did, those parts will still be more expensive than they were before. Meanwhile, American manufacturers will see their sales to Mexico plummet.

So, the overall effect would be something like this: some manufacturing that is currently done in Mexico might come back to the U.S. But some manufacturing jobs that are currently in the U.S. would be lost as a result of declining American exports, leading to lower sales and reduced demand. In addition, making cars will become more expensive because the parts will be more expensive, leading to higher prices for American consumers, which will reduce demand (more expensive cars means more people will stick with the car they have rather than buy a new one) which will lead to more job losses in the U.S.

The reality is that the decline in manufacturing jobs in the U.S. over the last 40–50 years has many, many causes. NAFTA is only a small part of that. Automation is responsible for a lot of it; the greater global competitiveness (compared to the 1950s and 1960s, when American manufacturing was booming) of goods manufactured in other countries like Japan and Germany is another; reduced transportation costs making imports cheaper even in the absence of trade agreements are another; trade agreements are also part of the picture, but just a part.

NAFTA was ratified in 1993. The decline in American manufacturing began long before that, and dates back to at least the early 1970s. Part of this was inevitable; the rapid growth of American manufacturing in the 1940s, 1950s and 1960s was in part a product of World War II. During the war, American manufacturing grew explosively to meet the demands of war production; after the war, for decades the U.S. had a huge edge in manufacturing because most other industrialized nations had their factories and infrastructure heavily damaged or destroyed during the war. Rebuilding took time, and then those foreign companies, in places like Germany and Japan, were way behind American manufacturers who had seized a huge slice of the global marketshare for manufactured goods. This was a temporary, artificial situation that was never going to last forever, and as these foreign companies became more competitive with American manufacturers, they won back significant parts of the global market. American market share declined, leading to a decline in manufacturing jobs.

There's a song by Billy Joel called Allentown. It was released in 1982, more than a decade before NAFTA. It was about the declining standard of living in Allentown, Pennsylvania, which used to be a center of both coal and steel production. Here are some of the lyrics. Remember, this was more than a decade before NAFTA:

Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
Well our fathers fought the Second World War
Spent their weekends on the Jersey Shore
Met our mothers in the USO
Asked them to dance
Danced with them slow
And we're living here in Allentown

But the restlessness was handed down
And it's getting very hard to stay

Well we're waiting here in Allentown
For the Pennsylvania we never found
For the promises our teachers gave
If we worked hard
If we behaved

So the graduations hang on the wall
But they never really helped us at all
No they never taught us what was real
Iron and coal
And chromium steel
And we're waiting here in Allentown

But they've taken all the coal from the ground
And the union people crawled away

Every child had a pretty good shot
To get at least as far as their old man got
But something happened on the way to that place
They threw an American flag in our face

Well I'm living here in Allentown
And it's hard to keep a good man down
But I won't be getting up today

And it's getting very hard to stay
And we're living here in Allentown

So the problems in American manufacturing date back to well before NAFTA, and repealing or withdrawing from NAFTA will not fix them. It will probably just shift jobs around; some will come back, but other jobs that are still here will be lost.

And stuff will get more expensive for everyone.

The decline in American manufacturing is a complex problem with many causes, and complex problems do not have simple solutions.

If we repealed NAFTA, would that actually bring back jobs to the US? originally appeared on Quora—the knowledge sharing network where compelling questions are answered by people with unique insights. You can follow Quora on Twitter, Facebook, and Google+. More questions:

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