Do you think NAFTA has produced significant net benefits for the Canadian, Mexican, and U.S. economies?
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6 Benefits of NAFTA
The North American Free Trade Agreement (NAFTA) created the world’s largest free trade area of 454 million people.1 It links the economies of the United States, Canada, and Mexico. In 2018, the U.S. GDP was $20.5 trillion.2 Canada’s was $1.8 trillion, and Mexico’s GDP was $1.2 trillion.3 NAFTA’s trade area has a higher GDP than the $18.8 trillion produced by the 28 countries in the European Union.
Quadrupled Trade
Between 1993 and 2019, trade among the three members quadrupled from $290 billion to $1.23 trillion.56 That boosted economic growth, profits, and jobs for all three countries.7 It also lowered prices for consumers.
During that time, the United States increased its exports of goods to the other two from $142 billion to $549 billion.8 That’s 33% of its total exports, making Canada and Mexico its top two export markets.910 It shipped $293 billion to Canada and $256 billion to Mexico.
U.S. imports from its NAFTA partners were $678 billion. That’s 27% of total U.S. imports. It’s also more than quadruple the $151 billion imported in 1993. Mexico shipped $358 billion to the United States, and Canada shipped $320 billion.
NAFTA boosted trade by eliminating all tariffs among the three countries. It also created agreements on international rights for business investors. That reduced the cost of commerce. It spurs investment and growth, especially for small businesses.
Lowered Prices
Lower tariffs also reduced import prices. That lessened the risk of inflation and allowed the Federal Reserve to keep interest rates low.
That’s especially important for oil prices since America’s largest import is oil. The U.S. Census reports that Mexico shipped $15 billion in oil and petroleum products in 2017.11 Thanks to greater U.S. shale oil production, this figure was down from $24 billion in 2009. Canada shipped $75 billion.12 That’s up from $49 billion in 2009. Canada also boosted its production of shale oil.
NAFTA reduced U.S. reliance on oil imports from the Middle East and Venezuela.13 It was especially important when the United States banned oil imports from Iran.14 Why? Mexico and Canada are friendly countries. Other oil exporters, such as Venezuela and Iran, use oil as a political chess piece. For example, both started selling oil in currencies other than the petrodollar.
NAFTA lowered food prices in much the same way. In 2017, food imports from Mexico were $26 billion and from Canada were $24 billion, to total $50 billion.15 That’s a 67% increase from the $30 billion imported in 2008. Without NAFTA, it’s estimated that the food industry would have to pay $2.7 billion more annually to import goods—a cost that would likely be passed on to consumers in the form of raised prices.16
Increased Economic Growth
NAFTA boosted U.S. economic growth by as much as 0.5% a year.17 The sectors that benefited the most were agriculture, automobiles, and services.
U.S. farm exports to Canada and Mexico quadrupled from $11 billion in 1993 to $43 billion in 2016.20 It made up 25% of total food exports and supported 20 million jobs. This trade leveraged another $54.6 billion in business investment.
NAFTA increased farm exports because it eliminated high Mexican tariffs.21 Mexico is the top export destination for U.S. beef, rice, soybean meal, corn sweeteners, apples, and beans. It is the second-largest export destination for corn, soybeans, and oils.
