The Economics and Politics of Revoking NAFTA

45 Pages Posted: 26 Dec 2018 Last revised: 7 May 2021

See all articles by Raphael Auer

Raphael Auer

Bank for International Settlements (BIS)

Barthélémy Bonadio

University of Michigan at Ann Arbor - Department of Economics

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2018

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

Auer, Raphael and Bonadio, Barthélémy and Levchenko, Andrei A., The Economics and Politics of Revoking NAFTA (December 2018). NBER Working Paper No. w25379, Available at SSRN: https://ssrn.com/abstract=3306083

Raphael Auer (Contact Author)

Bank for International Settlements (BIS) ( email )

Barthélémy Bonadio

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

HOME PAGE: http://alevchenko.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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