When the historic North American Free Trade Agreement of 1993 (NAFTA) was approaching its controversial passage in Congress, the New York Times said:
Abundant evidence is emerging that jobs are shifting across borders too rapidly to declare the United States a job winner or a job loser from the trade agreement.
Posing the issue in these terms committed the central fallacy in many discussions of international trade -- assuming that one country must be a "loser" if the other country is a "winner." International trade is not a zero-sum game. Otherwise, nations would not continuously engage in it. Both must gain or it would make no sense.
As for jobs, there were dire predictions of "a giant sucking sound" as jobs would be sucked out of the United States to Mexico and other countries with lower wage rates after the free-trade agreement went into effect. In reality, the number of American jobs increased after the agreement and the unemployment rate in the United States fell to the lowest levels seen in decades. Before NAFTA was passed, Congressman David Bonior of Michigan warned: "If the agreement with Mexico receives congressional approval, Michigan's auto industry will eventually vanish." But what actually happened was that employment in the automobile industry increased by more than 100,000 jobs over the next six years.
Such results clearly surprised many people. But it should not have surprised anyone who understood economics.
Let's go back to square one. What happens when a given country, in isolation, becomes more prosperous? It tends to buy