How Free Trade Helps Employment and the Economy

Cyril Handal /

Since 1989, the United States has enacted numerous free trade agreements with countries around the world. These agreements have increased trade, improved international relations, and strengthened the U.S. economy. But don’t let the facts stop a good political fight.

The North American Free Trade Agreement (NAFTA), enacted in 1993, inspires the most controversy. For example, the Economic Policy Institute (EPI), in an exercise that stretches the logic of statistical analysis well past the breaking point, claims that the net loss of U.S. jobs due to NAFTA from 1993 to 2002 was 879,280.

According to EPI, a rising trade deficit means more jobs are being displaced by imports than created by exports. That’s not the case. Many U.S. imports are inputs that help create jobs. Oil provides one example of this process. Importing oil reduces gas prices and transportation costs, allowing companies to hire more workers. The price we pay for gas would skyrocket if the U.S. stopped importing oil and relied solely on domestic oil. Imports also create jobs in the wholesale, retail, and shipping industries. Many critics of trade deficits also make the mistake of counting imports as a “cost” while failing to count inflows of foreign capital as a benefit.

Here are the facts: From 1993 to 2002, the U.S. economy posted a net gain of 20 million jobs. More specifically, since NAFTA took effect, the labor market had a net increase of 26 million jobs. When critics assert that NAFTA reduced employment in the United States, there are 26 million arguments against that claim.

The argument that trade agreements result in net U.S. job losses is not supported by economic theory or real-world data. Free trade agreements make people more productive by enabling them to specialize and work together more efficiently. We need more trade, not less, and it would be a step in the right direction for President Obama to submit the long overdue trade agreements with Colombia, Panama, and South Korea to Congress with no strings attached as soon as possible.

Cyril Handal is a member of the Young Leaders Program at The Heritage Foundation. Click here for more information on interning at Heritage.