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The Economics and Politics of Revoking NAFTA

Author

Listed:
  • Raphael A. Auer

    () (Bank for International Settlements and CEPR)

  • Barthélémy Bonadio

    () (University of Michigan)

  • Andrei A. Levchenko

    () (University of Michigan NBER and CEPR)

Abstract

Abstract We provide a quantitative assessment of both the aggregate and the distributional effects of revoking NAFTA using a multi-country, multi-sector, multi-factor model of world production and trade with global input–output linkages. Revoking NAFTA would reduce US welfare by about 0.2%, and Canadian and Mexican welfare by about 2%. The distributional impacts of revoking NAFTA across workers in different sectors are an order of magnitude larger in all three countries, ranging from − 2.7 to 2.23% in the USA. We combine the quantitative results with information on the geographic distribution of sectoral employment, and compute average real wage changes in each US congressional district, Mexican state, and Canadian province. We then examine the political correlates of the economic effects. Congressional district-level real wage changes are negatively correlated with the Trump vote share in 2016: districts that voted more for Trump would on average experience greater real wage reductions if NAFTA is revoked.

Suggested Citation

  • Raphael A. Auer & Barthélémy Bonadio & Andrei A. Levchenko, 2020. "The Economics and Politics of Revoking NAFTA," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(1), pages 230-267, March.
  • Handle: RePEc:pal:imfecr:v:68:y:2020:i:1:d:10.1057_s41308-019-00096-y
    DOI: 10.1057/s41308-019-00096-y
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    References listed on IDEAS

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    1. Simon Galle & Andrés Rodríguez-Clare & Moises Yi, 2017. "Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade," NBER Working Papers 23737, National Bureau of Economic Research, Inc.
    2. Swati Dhingra & Hanwei Huang & Gianmarco Ottaviano & João Paulo Pessoa & Thomas Sampson & John Van Reenen, 2017. "The costs and benefits of leaving the EU: trade effects," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 651-705.
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    4. Gabriel Felbermayr & Marina Steininger & Erdal Yalcin, 2017. "Konsequenzen einer protektionistischen Handelspolitik der USA," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 89, April.
    5. repec:fth:michin:261 is not listed on IDEAS
    6. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 511-540, July.
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    Cited by:

    1. Davide Furceri & Swarnali A. Hannan & Jonathan D. Ostry & Andrew K. Rose, 2018. "Macroeconomic Consequences of Tariffs," NBER Working Papers 25402, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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