The Economics and Politics of Revoking NAFTA
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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.
JEL ClassificationF11 F13 F16 F62 J62 R13
We are grateful to our discussant Kei-Mu Yi, Stijn Claessens and workshop participants at the BIS, the IMF ARC, University of Bayreuth and the Standing Field Committee in International Economics at the Verein für Socialpolitik for helpful comments, and to Julieta Contreras for excellent research assistance. The views expressed in this study do not necessarily reflect those of the Bank for International Settlements.
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