Commentary | Trade and Globalization

Pennsylvania Stagnation: Is Nafta the Culprit?

Opinion pieces and speeches by EPI staff and associates.


Pennsylvania stagnation: Is NAFTA the culprit?

By Robert E. Scott

The Democratic presidential primary in Pennsylvania has drawn attention to troubles in the state’s manufacturing sector and to the role played by the North American Free Trade Agreement specifically and by global trade generally. Despite isolated success stories, Pennsylvania manufacturing has experienced job loss and stagnation for over a decade.  Not everything that has gone wrong with the Pennsylvania economy is due to trade, but the worries of workers in the state (and throughout the country) about what globalization means for their living standards are well-founded.

Nafta became the framework for the global economy when it took effect in 1994 It was followed by the World Trade Organization in 1995 and by numerous similar agreements.  While these deals were not responsible for globalization, they certainly encouraged the rapidly growing trade and investment that has occurred in the past decade.  

There is no doubt that American manufacturing has been hard hit by globalization.  Between 1967 and 2000, manufacturing employment went up or down with the business cycle, but never dipped below 16.5 million workers.  Since 2001, the U.S. has lost 3.4 million manufacturing jobs and employment dipped below 14 million.  

Pennsylvania manufacturing has been even harder hit, with 208,000 jobs lost — a 24 percent decline — in the same period.  Overall employment growth in the state continues to lag that of the rest of the country; jobs in the nation as a whole have grown three times as fast as jobs in Pennsylvania.  Furthermore, real median wages in Pennsylvania fell 2 percent between 2001 and 2007. 

Some have mistakenly blamed productivity growth or slow demand for manufactured goods for manufacturing job losses in Pennsylvania and nationally, arguing that the sector’s decline is inevitable. This is wrong. Manufacturing has always enjoyed fast productivity growth, and demand for its goods remains strong. What has changed in the past decade is that a much larger share of goods purchased by U.S. consumers are now imported, and jobs displaced by these imports have not been replaced by export-supported jobs.

In the decade after Nafta, growing trade deficits with Mexico and Canada eliminated 44,000 jobs in Pennsylvania and more than a million nationwide. In this decade, China has overtaken Nafta as the source of our largest trade deficit.  From 2001, when it entered the W.T.O., to 2006, the growth of the American trade deficit with China eliminated an additional 78,000 Pennsylvania jobs alone.  In both cases, about two-thirds of the losses  were in manufacturing. 

Some have argued that job growth and unemployment are affected by factors other than trade, and that workers laid off from manufacturing plants are more likely than not to find new jobs.  True enough, but when a steelworker loses his job in a mill and ends up as a greeter at Wal-Mart, would anybody honestly say that he has not “lost a job”?

These displaced workers are only the most visible casualties of trade. Job displacement and competition for manufacturing jobs with workers in low-wage countries like Mexico and China depress the wages of not just industrial workers, but of all workers throughout the economy with similar skills and credentials. Landscapers may not know that their wages are being hurt by trade, but when laid-off steelworkers crowd into their labor force, they are.

Josh Bivens, my colleague at the Economic Policy Institute, recently wrote that in 2006, trade with low-wage countries pulled down wages of workers without a college degree by roughly 4 percent. For a married couple with no college degrees and with kids, earning the median wage, this means that trade flows have cost this household more than $2,000.  This is, by the way, the net effect of trade: it takes into account the presumed savings the family members enjoy in the form of cheap foreign goods, like that T-shirt at Wal-Mart, and the wages earned in exporting industries.

It doesn’t have to be this way.  For starters, we can take a number of steps to reduce the U.S. trade deficit, like forcing China to end its unfair trade practices and insisting on improvements in labor rights in Mexico and other countries.   Reducing the American trade deficit can help expand U.S. exports, which have been the most rapidly growing sector of the economy for the past year, thus helping Pennsylvania’s manufacturing workers. 

The conversation about trade is too important to be relegated to election season polemics.  An intelligent discussion will begin when the conventional wisdom catches up to the reality faced by workers in Pennsylvania and the rest of the country.

Robert E. Scott is a senior international economist with the Economic Policy Institute in Washington, D.C.


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