Leaving NAFTA:Implications for Inequality

Abstract We explore the impact that the renegotiation of NAFTA would have on both high- and low-skilled workers in the United States. We build a multi-country general equilibrium trade model with vertically integrated supply chains and trade in both intermediate goods and the technologies necessary to produce them. The technologies used to produce intermediate goods are assumed to be non-rivalrous and skill-augmenting. We find the freer trade generally increases inequality through increased investment in the skill-augmenting technology, but a reduction in trade with Mexico does little to offset the existing inequality in the United States.