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The Economics and Politics of Revoking NAFTA

Author

Listed:
  • Raphael Auer
  • Barthélémy Bonadio
  • Andrei A. Levchenko

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 2.26% in the United States. 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 Auer & Barthélémy Bonadio & Andrei A. Levchenko, 2018. "The Economics and Politics of Revoking NAFTA," NBER Working Papers 25379, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25379
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    2. Yuko Imura, 2019. "Reassessing Trade Barriers with Global Value Chains," Staff Working Papers 19-19, Bank of Canada.
    3. 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.
    4. Machin, Stephen & Costa, Rui & Dhingra, Swati, 2019. "Trade and Worker Deskilling," CEPR Discussion Papers 13768, C.E.P.R. Discussion Papers.
    5. Davide Furceri & Swarnali A Hannan & Jonathan D Ostry & Andrew K Rose, 2022. "The Macroeconomy After Tariffs," The World Bank Economic Review, World Bank, vol. 36(2), pages 361-381.
    6. Khan, Nazmus Sadat, 2020. "Revisiting the effects of NAFTA," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 1-16.
    7. Sanyal, Anirban, 2023. "Caught in the Crossfire: How Trade Policy Uncertainty Impacts Global Trade," EconStor Preprints 272825, ZBW - Leibniz Information Centre for Economics.
    8. Pablo D Fajgelbaum & Pinelopi K Goldberg & Patrick J Kennedy & Amit K Khandelwal, 2020. "The Return to Protectionism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 1-55.
    9. Sanyal, Anirban, 2021. "Impact of US-China Trade War on Indian External Trade," EconStor Preprints 242250, ZBW - Leibniz Information Centre for Economics.

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    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
    • 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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