Cleveland Fed's 1992 NAFTA Prediction: 'Its Impact Should Be Minimal'

CLEVELAND (TDB) -- Sixteen years later, the Cleveland Fed's prediction looks wrong. In the political realm, NAFTA in 2008 is turning into a deciding force in the presidential race, with Obama using his long-standing skepticism of the trade agreement as a tool to hammer Hillary Clinton. A Cleveland Federal Reserve Bank "economic commentary" published on the eve of the 1992 presidential contest gives a peek back into the era of NAFTA's birth, the era when blue-collar concerns were minimized. The Cleveland Fed's Oct. 15, 1992 report is called "NAFTA and the Midwest," and is available online here.

The Fed said its Economists' Roundtable concluded the trade agreement wouldn't lead to any significant impact on the region:

"Participants were asked to assess how they see the agreement affecting their businesses, with particular emphasis on autos, steel, and electronics/telecommunications -- three industries of great importance to the Midwest econony. In addition, several outside experts were invited to present their insights on the economywide and industry-specific effects of the pact. The group generally agreed that NAFTA would have only a minimal impact on worker displacement."

One thing that hasn't changed. Blue collar workers were suspicious that trade agreements could end up costing their paychecks.

"In the United States, and particularly the Midwest, many workers are concerned that NAFTA may be their ticket to the unemployment line. Participants at the latest meeting of the Fourth Federal Reserve District Roundtable see it another way. While they recognize that reducing trade barriers displaces workers, they generally agree that NAFTA's impact on both job loss and overall benefits would be modest. In their view, the agreement is primarily a means of solidifying rather than inititating the process of opening national borders to trade and investment. The fortunes of particular workers will depend on both the competitiveness of their industries and the skill requirements of the new jobs that will be created."

The big question in 2008: Where are all those new jobs in Ohio that were supposed to be created?

Cleveland Fed Reserve Chief: Ohio Not Losing Jobs 'Faster' Than U.S. As A Whole

CLEVELAND (TDB) -- Ohio's economy is losing jobs at the rate of 300,000 every quarter and somehow manages to replace them all. So says Cleveland Fed Chief Susan Pianalto, who contends the state's difficulty is "not unusually high job destruction," but slow overall growth. Pianalto says the state must create a business climate that embraces education and innovation to solve long-term structural issues that have caused accelerating economic decline.

Pianalto blames neither globalization nor foreign trade agreements like NAFTA for Ohio's lackluster economic performance. The state once had the nation's 5th largest economy among the 50 states; today it is 7th. The Cleveland fed chief says there simply has not been enough new business formation to pick up the slack.

"The dynamics of creative destruction play out across almost all sectors of our economy. The churning of firms also creates a churning in labor markets. Here in Ohio, we have roughly 5.5 milion workers. In each quarter of the year, roughly 300,000 jobs are destroyed, but in each quarter, roughly 300,000 new jobs are created.

"But even with all of this churning, Ohio's labor market it less dynamic than the nation as a whole. That is, at the national level, roughly 7 percent more jobs are created each quarter than are lost. Many Ohioans tend to blame our weaker employment growth on the job losses in our traditional manufacturing industries. However, Ohio is not losing jobs at a faster rate than the rest of the country. Our problem is not unsually high job destruction. Instead, it is our weak job creation, especially in the number of jobs created through new business formation."