In 1988, the average Canadian tariff rate against the United States was 8.1 percent. The corresponding effective tariff rate was 16 percent. Perhaps most importantly, tariffs in excess of 10 percent sheltered one in four Canadian industries. Given that these industries were almost all characterized by low wages, low capital-labour ratios, and low profit margins, the 1988 tariff wall was indeed high.

... Employment losses of 5 percent translate into 100,000 lost jobs and strike me as large, not least because only a relatively small number of industries experienced deep tariff concessions. Indeed, most of these lost jobs were concentrated in the most-impacted, import-competing industries. For this group, with its 12 percent job losses, one in eight jobs disappeared. This number points to the very large transition costs of moving out of low-end, heavily protected industries. It reflects the most obvious of the costs associated with trade liberalization.

It is difficult to be sure whether these transition costs were short-run in nature. However, two facts drawn from the most recent seasonally adjusted data suggest that they probably were short run costs. First, the FTA had no long-run effect on the Canadian employment rate which was 62 percent both in April 1988 and April 2002. Second, Canadian manufacturing employment has been more robust than in most OECD countries. [Emphasis added.] For example, between April 1988 and April 2002, manufacturing employment rose by 9.1 percent in Canada, but fell by 12.9 percent in the United States and by 9.7 percent in Japan. This suggests, albeit not conclusively, that the transition costs were short run in the sense that within 10 years the lost employment was made up for by employment gains in other parts of manufacturing.

... the Canadian tariff concessions raised labour productivity by 15 percent in the most-impacted, import-competing group of industries. This translates into an enormous compound annual growth rate of 1.9 percent. The fact that the effect is smaller and statistically insignificant at the plant level suggests that much of the productivity gain is coming from market share shifts favouring high productivity plants. Such share shifting would come about from the growth of high-productivity plants and the demise and/or exit of low-productivity plants.

... The plant-level numbers indicate that the FTA raised labour productivity in manufacturing by 7.4 percent or by an annual compound growth rate of 0.93 percent. The industry-level numbers are about the same. These numbers, along with the 14-15 percent effects for the most-impacted importers and exporters, are enormous. The idea that an international trade policy could raise labour productivity so dramatically is to my mind remarkable.

... The Canadian tariff concessions raised Canadian imports from the United States by 54 percent. ... The Canadian tariff concessions lowered Canadian imports from the rest of the world by 40 percent.

...There is modest evidence ... that the FTA reduced import prices by 7 percent for the most-impacted import-competing products.

... Most commentators expected Canadian wages to fall in response to competition from lessunionized, less-educated workers in the southern United States. ...For all workers, the tariff concessions raised annual earnings. For example, the total FTA impact is a rise of 3 percent at both the industry level and the plant level. ... At the plant level, earnings rose for both production and non-production workers. At the industry level, earnings gains were concentrated among production workers. ... a 3 percent rise in earnings spread over 8 years will buy you more than a cup of coffee, but not at Starbucks. The important finding is not that earnings went up, but that earnings did not go down in response to competitive pressures from the U.S. South.

... unionization does not offer an explanation of modestly rising earnings.

... There is a presumption in the popular press that anything to do with globalization will worsen income inequality. It is thus reassuring that there is absolutely no evidence that the FTA worsened income inequality.

... Several strong conclusions emerged from the analysis. First, the FTA was associated with substantial employment losses: 12 percent for the most-impacted, import competing group of industries and 5 percent for manufacturing as a whole. These effects appear in both the industry- and plant-level analyses. Second, the FTA led to large labour productivity gains. For the most-impacted, export-oriented group of industries, labour productivity rose by 14 percent at the plant level. For the most-impacted, import-competing group of industries, labour productivity rose by 15 percent with at least half of this coming from the exit and/or contraction of low-productivity plants. For manufacturing as a whole, labour productivity rose by about 6 percent which is remarkable given that much of manufacturing was duty free before implementation of the FTA. Third, the FTA created more trade than it diverted and possibly lowered import prices. Thus, the FTA likely raised aggregate welfare.