The U.S. has a 60 billion dollar trade deficit with Mexico. It has been a one-sided deal from the beginning of NAFTA with massive numbers ...
— Donald J. Trump (@realDonaldTrump) Jan. 26, 2017
… of jobs and companies lost. If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting. — Donald J. Trump (@realDonaldTrump) Jan. 26, 2017
President Donald Trump started his day by tweeting out criticism of the North American Free Trade Agreement (NAFTA), calling it a “one-sided” deal resulting in “a 60 billion dollar trade deficit with Mexico.”
About that latter bit: Trump's right that our current trade deficit is in the $60 billion range. Here's what that looks like if you chart it out back to 1985. These are census numbers, not adjusted for inflation.
Kind of alarming, right? We'd actually been running a bit of a trade surplus with Mexico before NAFTA kicked in. So is Trump right that we've been given a raw deal that's bad for the American economy?
Not exactly. The trade deficit blew up only because our total amount of trade with Mexico ballooned even faster. In 1993, the year before NAFTA was enacted, our total volume of trade with Mexico — imports and exports — stood at about $85 billion. As of 2015 (the latest year with complete data), trade with Mexico adds up to $532 billion annually.
Here's what that looks like, with the net trade deficit plotted on the same chart as imports and exports. Again, all in nominal dollars from the Census Bureau.
Think of it this way: Since 1993, the annual trade deficit with Mexico has grown from essentially zero dollars to $60 billion. But over the same period, we added about $193 billion in annual exports to our neighbors to the south.
As of 2015, annual exports to Mexico stood at $236 billion. That's $236 billion in business for American companies and the workers they employ. You reduce that number, you reduce American jobs.
The flip side, of course, is that we're also buying more stuff from Mexico, as seen in those import numbers. And some of those are cheap purchases of things that may have once been made by American workers for a higher price.
Is that trade-off worth it? Economists generally say “yes, absolutely.” As Neal Rothschild and Christopher Matthews write at Axios, from a big picture economic standpoint, “you'd rather have $10 worth of exports and $15 worth of imports than $8 of both and no trade deficit.”
Workers in industries disrupted by the trade deal, on the other hand, typically say “no.”
Regardless of which side of the debate you stand on, focusing solely on the trade deficit to the exclusion of the exports and imports its derived from doesn't make a lot of sense.
Or, as Upshot economic correspondent Neil Irwin observed Thursday via Twitter:
I am running a considerable trade deficit with my neighborhood Mexican restaurant and therefore insist that they pay to renovate my kitchen. https://t.co/dF44hKTUAo
— Neil Irwin (@Neil_Irwin) Jan. 26, 2017