NAFTA, or the North American Free Trade Agreement, was instituted 25 years ago in 1994. The trade agreement has endured criticism from both parties over the past two decades. Despite its downsides, the trade agreement has helped to grow American jobs and promote free trade between the United States, Mexico, and Canada. Delaena Kalevor, a finance professional, examines the history of NAFTA and creates a roadmap for trade between these three countries going forward.
The Purpose of NAFTA
The North American Free Trade Agreement was created to reduce the cost of trade between its three member countries. It fosters investment by businesses in all three countries. It is also intended to make the three countries more competitive on a global scale.
History of NAFTA
During the 1980 campaign, President Reagan made a case for a better North American trade agreement. This idea took several years to come to fruition. It was modeled on the European Treaty of Rome, which created a multi-national free trade zone.
Congress approved the Trade and Tariff Act in 1984. This agreement came out of the 1974 Trade Act. The Trade and Tariff Act paved the way for future free trade agreements between the United States and other countries.
Canada’s then-Prime Minister Mulroney entered negotiations for the Canada-U.S. Free Trade Agreement in 1985. This agreement came into force in 1989.
Mexico wanted to be part of the free trade agreement between Canada and the United States. The Mexican President at the time, Carlos Salinas de Gortari, began negotiations with President George H.W. Bush in 1990. Pre-NAFTA, there was an uneven balance of trade between Mexico and the United States. During negotiations, it was decided that the Mexican and Canadian free trade agreements should be combined into one treaty to create a three-nation free trade zone.
NAFTA was signed in 1992 and approved by the legislatures of all three countries in 1993. President Bill Clinton signed this agreement in December 1993, and it went into effect on January 1, 1994.
Goals of NAFTA
The goals of the trade agreement include reducing the barriers to trade between the three nations. The agreement also encourages better working conditions in Canada, Mexico, and the United States. The agreement created a safe and expanded market for North American products and services. NAFTA also gave the three member countries a better footing when negotiating trade agreements with non-member nations.
Benefits of NAFTA
The United States has enjoyed increased access to the economies of Canada and Mexico, more than tripling its trade since the institution of NAFTA. Over $80 billion were added to the United States economy through the provisions of the trade agreement.
Since trade tariffs were dropped between the three countries, Mexico has bought more American products. They have also overcome a trade deficit of their own goods with the United States and Canada. Wages have risen, and poverty has decreased. Mexico has had it’s working conditions and environmental concerns improved.
Canada has benefited in job growth, a better selection of trade goods, increased volume of trade, better direct investment from the United States, and new job development.
Drawbacks of NAFTA
Many economists and politicians warned that the trade agreement would create a job deficit between Mexico and the United States, where countries would move jobs to Mexico to avoid higher labor costs. This partially came into fruition, though the effects were not as severe as were feared by leaders in the early and mid-1990s.
Critics of NAFTA claim that the agreement caused job loss and wage leveling, with a serious impact on the local economies affected by its provisions. The balance of trade between the United States and Mexico shifted to favor Mexico, with a $1.7 billion surplus trade between the two countries in 1993 to a deficit of $54 billion in 2014.
NAFTA critics also blame the increased imports from Mexico for the loss of 600,000 U.S. jobs since its institution. The United States auto industry lost jobs at the expense of Mexican jobs.
Successors to NAFTA
During the 2016 Presidential election, President Donald Trump proposed an overhaul of trade between Mexico, the United States, and Canada. He claimed that the trade agreement had turned against the United States, a claim which is borne out by some economists though several more disagree.
In 2017, negotiations began on the new agreement, known as the U.S.-Mexico-Canada Agreement or the USMCA. This agreement attempts to level the playing field on auto imports, requiring that auto manufacturers source their vehicles from 75 percent non-imported parts. If the agreement passes the three nations’ legislatures, it will make significant changes to trade in North America. Delaena Kalevor encourages interested parties to follow the development of this new trade agreement.