Local Economic and Political Effects of Trade Deals: Evidence from NAFTA

Abstract

Why have white, less-educated voters left the Democratic Party? We highlight the role of the 1994 North American Free Trade Agreement (NAFTA). In event-study analysis, we demonstrate that counties whose 1990 employment depended on industries vulnerable to NAFTA suffered large and persistent employment losses after its implementation. Voters in these counties (and protectionist voters regardless of geography) turned away from the party of President Clinton, who promoted the agreement. This shift is larger for whites (especially men and those without a college degree) and social conservatives, suggesting that racial identity and social-issue positions mediate reactions to economic policies. (JEL D72, F15, F16, J15)