During a press event to announce a successor trade pact to the North American Free Trade Agreement, President Donald Trump sought to portray NATFA as a disaster for American trade.
"Since NAFTA’s adoption, the United States racked up trade deficits totaling more than $2 trillion," Trump said at the Oct. 1, 2018, event at the White House. (Watch it at about the 20:00 mark.)
Is that true?
We turned to data for trade in goods with Canada and Mexico published by the U.S. Census Bureau. We totaled up the trade surpluses or deficits with each country between 1994 — the year the agreement was signed — and 2017, the last full year for which data is available. (Reminder: A trade surplus means that exports exceed imports; a trade deficit means that imports exceed exports. It doesn’t literally mean the United States lost $2 trillion.)
Here’s the year-by-year summary of the balance of trade of goods with both countries. With one exception, they were all annual deficits. (Mexico is marked in red, while Canada is marked in blue.)
If you add it all up, the accumulated U.S. trade deficit with both countries in goods between 1994 and 2017 was $1.97 trillion. Rounded up, that’s $2 trillion.
But it’s not a fully comprehensive description. These figures are for goods only — not for goods and services. When Trump has talked as president about trade statistics, he has often referred to the deficit for goods only. That paints the United States’ trade position in a worse light than If the calculation had included services (such as legal or accounting services).
We couldn’t find data on services all the way back to 1994, but we’ll use data for 2015, 2016 and 2017 for a sense of how the numbers differ.
In each of those years, the United States erased its modest trade deficit in goods with Canada by running a trade surplus in services. The impact of services on the trade balance with Mexico was smaller, but the trade deficit with Mexico typically shrank when services were included.
Second, Trump uses this statistic to emphasize the negative impact of NAFTA while minimizing the positive impact.
NAFTA certainly had negative aspects for the United States. We recently rated a Trump statement that "we lost thousands of plants" due to NAFTA Mostly True.
Still, the agreement has had positive impacts as well. For instance, NAFTA increased the amount of U.S. exports to both countries, which in turn produced jobs that didn’t exist before. Here’s a chart showing the level of U.S. exports to Canada and Mexico in 1994 and 2017.
"There are volume benefits to trade under NAFTA," said Ross Burkhart, a political scientist specializing in U.S.-Canada relations at Boise State University. "Exports across NAFTA are one of them. Across the vast majority of U.S. states, Canada remains the No. 1 trading partner both in exports and imports."
It’s also worth noting that the concept of "exports" and "imports" between NAFTA-member countries has blurred, since partially assembled goods often cross the Canada-U.S. border several times before the final product is assembled, especially in the automobile sector.
"If Ford used to ship engines from a parts plant in Dearborn, Mich., to one in Ypsilanti, Mich., but it now ships those parts to Monterey, Mexico, for assembly into a car or truck that is shipped back to the United States (and if the Ypsilanti assembly plant has closed), then the increase in exports to Mexico has not supported any new jobs," said Robert E. Scott, senior economist and director of trade and manufacturing policy research at the Economic Policy Institute, which is skeptical of trade agreements.
Various independent estimates have found that the net job losses from NAFTA were modest, with the gains roughly offsetting losses.
In general, experts who are favorable to free trade say that arguing over deficits and surpluses misses the point.
Specifically, trade deficits stem from demand among U.S. consumers for products that U.S. producers cannot meet, whether that’s because no American company makes the product in question, because American companies aren’t making the product cheaply enough, or because U.S.-produced wares simply aren’t appealing enough to consumers.
"We should be running deficits with some countries and surpluses with others, since comparative advantage will vary, country by country," I.M. (Mac) Destler, who teaches at the University of Maryland School of Public Policy, has told us previously.
Trump said, "Since NAFTA’s adoption, the United States racked up trade deficits totaling more than $2 trillion."
The trade deficit is different from the national debt in that it is not money owed to another country in the future. But if you compile the trade deficit for goods alone, Trump is on target. The amount might be smaller once services are factored in.
It’s worth noting that this statistic emphasizes the negative impacts of the trade deal but ignores positive impacts, such as significant increases in U.S. exports to both countries.
We rate the statement Mostly True.