What Is the Importance of the North American Free Trade Act?

by Alex Kocic ; Updated September 26, 2017
NAFTA involves Canada, Mexico and the U.S.

The North American Free Trade Act (NAFTA) is a free trade deal between Canada, Mexico and the U.S. which came into force in 1994. It gradually eliminated the vast majority of tariffs on products traded among the three nations in several industries including agriculture, textiles and automobiles. Although there are those who say that the agreement led to job losses in all three countries, on the whole economists agree that NAFTA has brought gains to its members.

Official Figures

Trade between member nations has tripled.

NAFTA's official website claims that since the agreement came into effect, trade among the three NAFTA countries has more than tripled, reaching $949.1 billion. It adds that Mexico has become one of the largest recipients of foreign direct investment among emerging markets, receiving more than $156 billion from its NAFTA partners between 1993 and 2008. During the same time, total employment across North America has grown by almost 40 million jobs.

Importance for the U.S.

U.S. has benefited from increased agricultural trade with Mexico and Canada.

The Office of the United States Trade Representative claimed in 2008 that due to NAFTA, U.S. agricultural exports to Mexico and Canada have gone up and that overall trade among the three NAFTA nations tripled. It also pointed out that employment in the U.S. increased by 24 percent between 1993 and 2007. Thea M. Lee, policy director for AFL-CIO, responded to that by saying that many U.S. workers have been pushed into lower-paying jobs and that NAFTA forced workers into more direct competition with each other, while assuring them fewer rights and protections.

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Importance for Mexico

Economists think that the treaty has brought modest growth to Mexico.

An analysis of NAFTA by the Council on Foreign Relations states that Mexican exports to the United States have quadrupled since NAFTA's implementation and that trade liberalization between Mexico and the United States has brought broad positive consequences for ordinary Mexicans, not just Mexican business interests. While economists argue over the impact of the treaty on Mexican agriculture, on the whole they agree that NAFTA has brought only modest economic growth to Mexico.

Importance for Canada

Canada has seen bigger annual growth rates than Mexico and the U.S.

Of the three members of NAFTA, Canada has seen the biggest annual growth rates since 1993, according to Council on Foreign Relations. Direct impact of NAFTA on trade relations between Canada and the U.S. is more difficult to measure, because the two countries had had a free trade deal even before. NAFTA has, however, helped boost agricultural flows between the two countries.

Other Considerations

NAFTA helped progressive forces in Mexico, said one economist.

Lawrence Summers, economics professor at Harvard University and former chief economist of the World Bank and secretary of the Treasury, said in an interview with PBS that NAFTA was a watershed as to whether America was going to stand for larger markets. He added that it resulted in a profound change in the internal political dynamics in Mexico in favor of the progressive forces that believed in the market and friendship with the United States.

About the Author

Alex Kocic has been a journalist since 1985, starting at a local radio station in Pancevo, Serbia, before moving to BBC World Service in London. He has freelanced for BBC Radio 4 and 5Live, and a number of Serbian media outlets, including B92, "Vreme," "E-Magazin" and "Travel Magazine." Kocic has a Master of Arts in international relations from the University of Staffordshire.

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