Ohio and NAFTA Revisited

By Joseph Zoric, posted March 31, 2008

Since passage of the North American Free Trade Agreement (NAFTA) in 1993 politicians and other political pundits have stated that NAFTA has done harm to the  economy. Starting with Ross Perrot's famous "giant sucking sound" to the recent primary election speeches of Senators Clinton and Obama who crisscrossed the state claiming that NAFTA has cost the state tens of thousands of manufacturing jobs, politicians of both political persuasions have railed against the agreement as a bad deal for Ohio.

An examination of the data, however, reveals that the criticisms of NAFTA are quite unfounded.

The Ohio unemployment rate has not been adversely affected by NAFTA. The rate stood at 7% in January of 1993 and fell to 4.2% in January of 1998.  After that the rate stayed around 4% before rising to 6% in January of 2003 and then moderating to 5.5% in January of 2008.[1] If NAFTA is as bad for the state as the critics claim, the unemployment rate should have risen, but fifteen years after the inception of the agreement, the state's unemployment rate is 1.5% below what it was at NAFTA's inception.

Ohio is also a state that is heavily dependent on international trade.  Over twenty percent of the state's manufacturing workers depend upon exports for their jobs.[2]  The state ranks eighth in exports among the fifty states and exports to 205 countries around the world.  In 2006, $18.3 billion of goods were exported to Canada and $2.7 billion to Mexico. Exports to Canada increased by 8.7% and those to Mexico increased by 13.3% from 2005 to 2006.  The top five categories of exports were machinery, vehicles, electrical machinery, plastics, and optics.[3]  These are all industries that support high paying manufacturing jobs which benefit from expanded trade.

Our political leaders would like us to believe that NAFTA is to blame for the decline of manufacturing jobs in the country.  It is true that in the fourteen years since NAFTA began, 2.7 million manufacturing jobs have been lost. However, in the fourteen years before NAFTA, 2.7 million manufacturing jobs were lost.[4] In fact, manufacturing employment as a percentage of all jobs has been declining since 1944 while manufacturing output has been rising in absolute terms.[5]  This trend is caused by increased productivity brought about by technological advancements in manufacturing which began long before NAFTA or the recent advancement in global trade.

If Ohio has been adversely affected by NAFTA, then why hasn't Texas suffered a similar fate?  After all, Texas is adjacent to Mexico and should face the fiercest manufacturing competition from a low wage country.  But as the Wall Street Journal reported, Ohio has lost over 10,000 jobs in the last ten years, while Texas has gained over 1.6 million.[6]

What is the difference between Ohio and Texas?   According to the Tax Foundation, Ohio's state and local tax burden has risen from 8.2% in 1970 when the state ranked 47th among the states in tax burden to 12.4% in 2007 when it ranked as the 5th highest taxed state in the country.  Texas on the other hand ranked 49th in 1970 and 46th in 2007 with a level of 9.3% in state and local tax burden.[7]  NAFTA has not taken manufacturing jobs from Ohio; the jobs have been taken away by the low-tax low- regulation states like Texas, Arizona and Tennessee.

Workers looking for reasons for Ohio's anemic job market need look no further than the State House where our legislators have been perpetuating the high tax, high regulation policies that have made the state a very bad place to do business. NAFTA is nothing but a convenient excuse for our own self imposed economic problems.

Joseph Zoric is an academic advisor at the Buckeye Institute of Public Policy Solutions and is an associate professor of economics at Franciscan University in Steubenville, Ohio.