Why Trump's anti-NAFTA message hits home with so many Americans

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Donald Trump has called the North American free-trade agreement (NAFTA) a "disaster" for the United States. He is wrong. But what has been good for America has demonstrably not been good for all Americans, and that is at the root of the trade disillusionment that has become a key election issue south of the border.

In Canada, it is hard to fathom the anti-NAFTA sentiment expressed not only by the routinely extreme Mr. Trump but also by his opponents (Democratic candidate Hillary Clinton also favours renegotiating at least parts of the U.S.-Canada-Mexico pact). For most Canadians, the question of trade liberalization was answered with a definitive "yes" long ago; trade deals have become a natural part of our economic development. But that has a lot to do with Canada's heavy reliance on exports as its economic lifeblood; even if we do not love NAFTA, we see that the crucial market access it gives us will always outweigh the negatives.

But in the United States, long the world's dominant economy and one of its greatest-ever success stories, the benefits of opening markets to Canadian and (even more importantly) Mexican competition are far less cut-and-dried. By some measures – the ones many economists point to – NAFTA has been a great success for the U.S. economy. But after more than 20 years under the agreement, plenty of U.S. voters feel left out in the cold. They have a point.

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It is far from the disaster that Mr. Trump asserts. Trade among the three countries has quadrupled since NAFTA came into effect. The NAFTA region's gross domestic product more than doubled. U.S. exports to its NAFTA partners have tripled – including a six-fold increase in exports to Mexico.

But try telling that to the American workers, towns and regions that have seen industries dry up and jobs disappear in the NAFTA era. U.S. employment in the manufacturing sector is down dramatically since the turn of the 21st century – to the tune of about five million jobs. Certainly, China's emergence as a manufacturing export superpower has played a huge role, but it is nevertheless conspicuous that Mexico's manufacturing employment has grown by 1.5 million in the past decade.

Still, with the U.S. unemployment rate hovering near nine-year lows, it is hard to argue that NAFTA and globalization are decimating the overall U.S. labour market. They are clearly creating jobs, just different jobs.

But while jobs overall have not disappeared, income growth has. In inflation-adjusted terms, the median U.S. household income is no higher than it was two decades ago. Critics hold this wage stagnation up as proof positive that workers have paid the price for NAFTA and trade liberalization; doing business with the likes of Mexico, with its cheap labour, has held down wages, they say.

At the same time, though, these same households have access to low-cost consumer luxuries like never before. The U.S. Bureau of Labor Statistics noted in a report last fall that the price of televisions, adjusted for "quality" (technological improvements), is down 94 per cent since 1997, while the quality-adjusted price of home computers is down 96 per cent. Nearly three-quarters of Americans have a smartphone in their pocket that has more processing power than a supercomputer of a generation ago, at a minuscule fraction of the cost. On an inflation-adjusted basis, the average U.S. price for a new car has fallen 13 per cent since 2000. Free trade has played a key role in helping reduce costs and increase ownership of a wide range of consumer goods. Americans may not be making a lot more money, but they have more stuff.

And they are richer. According to Credit Suisse's annual global wealth report, only one country (Sweden) has had faster growth than the United States in median household net worth since 2010. That hardly sounds like a country whose voters are being crippled by an unfair trade deal.

But this may be where we hit the crux of the perception problem around NAFTA, and globalization generally: Americans have not shared equally (or even close) in wealth growth.

Consider that Americans' average net worth (as estimated by Credit Suisse) was $353,000 last year. But the country's median net worth (i.e., the point at which exactly half the people have more wealth and half have less) was just one-seventh of that, $50,000. That is indicative of just how much of the country's wealth is concentrated at the high end of the range; the top 10 per cent of the wealthiest U.S. households have about 75 per cent of the wealth. And a disproportionate share of the wealth growth since the turn of the century has gone to the wealthiest Americans.

It could be that an economy that drifts from producing things with labour to producing ideas and financial services does involve a less-equitable distribution of the profits. And maybe globalization has accelerated that drift.

It is the people who have been left out of the benefits of trade who are commanding a greater voice in the political debate – we see it in the U.S. presidential campaign, and we saw it in Britain's recent Brexit vote. For too many people, growing inequality overshadows the benefits of free trade. The message to governments, in the United States and elsewhere, is that until the inequities of globalization are addressed, further meaningful trade liberalization is going to face a serious uphill battle.