Ohio and NAFTA
Since its creation in 1993, the North American Free Trade Agreement (NAFTA) has been widely criticized by politicians and labor leaders as harmful to the U.S. economy in general and to manufacturing and farm labor in particular. The most famous pronouncement came from presidential candidate H. Ross Perot during the 1992 campaign when he predicted that we would hear a "giant sucking sound" of companies moving their jobs to Mexico in search of low wages.
In fact, none of the dire predictions about NAFTA have come about either for Ohio or for the national economy in general. Every serious study on the subject shows that NAFTA has had a negligible effect on the overall economy.
In the case of Ohio, exports to NAFTA countries increased from just under $10 billion in 1993 to nearly $19 billion in 2003 [1]. Canada is Ohio's largest export market while Mexico is second. The state's most important exports to Mexico are vehicles, machinery, plastic, glass, rubber and steel [2].These are all industries that support high paying manufacturing jobs.
On the agricultural side, corn exports from Ohio to Mexico increased by two and a half times between 1994 and 2001 [3]. The major agricultural exports of the state are soybeans, feed grains, wheat, vegetables, and live animals and meat [4]. All these products would benefit from a further liberalization of trade in the Americas and around the world.
On the national level, The Federal Reserve Bank of Dallas reports that states bordering Mexico have not been damaged by NAFTA. Unemployment rates declined during the 1990s, while per capita income, retail sales, jobs, and wages all grew [5]. If NAFTA is as harmful as its critics contend, these bordering states should have suffered greatly, but in fact, the case was exactly the opposite.
Other studies indicate that the impact on the national economy have been negligible. The Institute for International Economics reports that trade with Mexico increased to $233 billion in 2001 but this figure, although large, is a small faction of the U.S gross domestic product. IIE points out that most of this trade would have taken place even without NAFTA [6]. U.S. foreign direct investment rose from $4.5 billion in 1994 to $17.5 billion in 2001. Although this is a large number, it is quite small compared to the $1.6 trillion of foreign investment made by the U.S. that year. Likewise, about 1,350 businesses have relocated from the U.S. to Mexico and 335 to Canada since the enactment of NAFTA, but this is a small fraction of the 4,000 firms that relocate from state to state each year [7]. So from the national point of view, NAFTA has a very small impact on the economy.
Ohio is now the sixth largest exporting state in the country, exporting goods to 200 countries around the world. Four of those countries purchase more than $1 billion of Ohio's exports [8]. This group includes Canada and Mexico and implies that NAFTA has had a positive impact on the economy of the state.
As the international economy expands and world markets become more important, Ohio should be in a strategic position to remain competitive. This means that the legislature needs to focus on making Ohio a more business friendly state by formulating a tax and regulation system that attracts rather than discourages business investment both domestically and from abroad.
Given these facts, more liberalized trade policies that would open up markets to Ohio's farmers and manufacturers should be welcomed by the citizens and political leaders of the state.
Notes
[1] "Ohio Exports 2003, Origin of Movement Series." Prepared and distributed by the Office of Strategic Research, Ohio Department of Development, April 2004.
[2] Ibid.
[3] "Trade and Agriculture: What's at Stake for Ohio?" U.S. Department of Agriculture, Foreign Agricultural Service, October 2001.
[4] Ibid.
[5] Federal Reserve Bank of Dallas, "Southwest Economy", Issue 3, May/June 2002. http://www.dallasfed.org/.
[6] Institute for International Economics, "North American Labor Under NAFTA. http://www.iie.com/publications/papers/nafta-labor1.htm.
[7] Ibid.
[8] "Ohio Exports 2003", p. ii.
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.
