Argument: Free trade frequently causes trade deficits in developed countries

Issue Report: Free trade

Supporting Evidence

Robert E. Scott,” The high price of ‘free’ trade, NAFTA’s failure has cost the United States jobs across the nation” November 17, 2003 | EPI Briefing Paper #147The United States has experienced steadily growing global trade deficits for nearly three decades, and these deficits accelerated rapidly after NAFTA took effect on January 1, 1994. For the purposes of this report it is necessary to distinguish between exports produced domestically and foreign exports, which are goods produced in other countries but exported to the United States, and then re-exported from the United States. Foreign exports made up 11.6% of total U.S. exports to Mexico and Canada in 2002. However, because only domestically produced exports generate jobs in the United States, our trade calculations are based only on domestic exports. Our measure of the net impact of trade, which is used here to calculate the employment content of trade, is the difference between domestic exports and total imports.3 We refer to this as “net exports,” to distinguish it from the more commonly reported gross trade balance. However, both concepts are measures of net trade flows.Although U.S. domestic exports to its NAFTA partners have increased dramatically—with real growth of 95.2% to Mexico and 41% to Canada—growth in imports of 195.3% from Mexico and 61.1% from Canada overwhelmingly surpass export growth, as shown in Table 1. The resulting $30 billion U.S. net export deficit with these countries in 1993 increased by 281% to $85 billion in 2002 (all figures in inflation-adjusted 2002 dollars). As a result, NAFTA has led to job losses in all 50 states and the District of Columbia, as shown in Figure 1. Through September 2003, the U.S. goods trade deficit with Mexico and Canada has increased 12% over the same period last year (U.S. Census Bureau 2003a). Job losses for the remainder of 2003 are likely to grow at a similar rate.