What is the North American Free Trade Agreement (NAFTA)?


The North American Free Trade Agreement (NAFTA) was implemented to promote trade between the US, Canada, and Mexico. The agreement, which eliminated most of the tariffs on trade between the three countries, came into force on January 1, 1994. Numerous tariffs, especially those relating to agricultural products, textiles and automobiles, were gradually eliminated from January 1, 1994 and January 1, 2008.

The purpose of NAFTA was to encourage the economic activity of the three major economic powers of North America: Canada, the United States, and Mexico. Proponents of the agreement believed that it would benefit the three participating countries by promoting freer trade and lower tariffs between Canada, Mexico, and the United States.

About a quarter of all US imports, such as crude oil, machinery, gold, vehicles, fresh produce, livestock, and processed food, come from Mexico and Canada.

In addition, approximately one third of US exports, especially machinery, auto parts, mineral fuels/oils and plastics, are destined for Canada and Mexico.

NAFTA legislation was developed during the presidency of George W. Bush as the first phase of his Enterprise for America initiative. The Clinton administration, which signed NAFTA into law in 1993, believed it would create 200,000 US jobs within two years and 1 million within five years, as exports play an important role in US economic growth. The administration expected a sharp increase in US imports from Mexico as a result of tariff cuts.

Has NAFTA helped the US economy?
Whether or not NAFTA helped the US economy is a matter of debate. To be sure, trade between the United States and its North American neighbors has more than tripled, from about $290 billion in 1993 to over $1.1 trillion in 2016. Cross-border investment has also risen, and overall US GDP has risen slightly.

But economists said it was difficult to determine the direct impact of the deal on other factors, including rapid technological change and increased trade with countries like China. Meanwhile, the debate continues about the impact of NAFTA on employment (which has been hit hard in some industries) and wages (which have largely stagnated).

How did Canada benefit from NAFTA?
“NAFTA has had an extremely positive impact on the Canadian economy. It opened up new export opportunities, stimulated the creation of an internationally competitive business, and helped attract significant foreign investment,” the Government of Canada website says.

In particular, US and Mexican investment in Canada has tripled since NAFTA went into effect. US investment alone has grown from $70 billion in 1993 to over $368 billion in 2013.

Total merchandise trade between Canada and the US has more than doubled since 1993, and between Canada and Mexico has grown ninefold.

There is an ongoing debate about the impact of NAFTA on the countries that signed it. There have been significant gains, some serious losses – and some results that are difficult to unravel.

While the United States, Canada, and Mexico saw increased trade, economic growth, and higher wages (mostly in northern countries) following the implementation of NAFTA, experts disagree on how much the agreement actually contributed, if at all, to manufacturing in the USA. jobs, immigration and consumer goods prices. NAFTA also did not affect all three member countries to the same extent or in the same way.

Thus, the overall actual impact of the agreement is difficult to isolate, especially from the lingering effects of the 2007-2009 Great Recession and other significant economic, technological and industrial trends that have occurred on the continent and around the world in the past quarter. -in. Often NAFTA is blamed for events that are not directly attributable to its fault or that could have happened anyway.

In a sense, NAFTA is a symbol of globalization and free trade. Thus, the views and analysis of this is often projected through the lens of opinion on these subjects in general.

Is NAFTA still in effect?
No, NAFTA has been effectively replaced by the US-Mexico-Canada Agreement (USMCA). Signed on November 30, 2018, it entered into force on July 1, 2020.

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