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The North American Free Trade Agreement (NAFTA): A twenty year retrospective

January 1, 2014 will make the anniversary of a full twenty years since the North American Free Trade Agreement, or the NAFTA, was implemented.

During the presidential political season that preceded the signing of the accord, candidates lined upon both sides of the issue.  On the detractor side stood third third-party candidate who predicted that the NAFTA would result in a “giant sucking sound” that would accompany the migration of manufacturing jobs just across the United States’ southern border into Mexico, while George H.W. Bush, who signed the agreement, and eventual president and vice-president, Bill Clinton  and Al Gore, stood in favor of the economic integration of the three nations. Clinton and Gore were of the opinion that the increase in economic activity between the U.S., Mexico and Canada would create an “all boats  rising” effect that would impact each signatory nations’ economy in a overall positive manner.

Twenty years after implementation there are still those who consider the signing of the North American Free Trade Agreement to have been akin to an act of economic treason, while there are other that feel that the results have been more akin to what Clinton projected to the prognostications of Ross Perot. Although, for the broader American public, Perot’s take on the NAFTA has resonated more, economists line up more in the Clinton-Gore camp.

What are the facts, both positive and negative about the North American Free Trade Agreement and the outcomes that it has generated to date?

On the plus side of the ledger:

  • Since the signing of the NAFTA, the total annual volume of trade flows between the three nations has tripled. Annual trade between the U.S., Canada and Mexico exceeded three trillion dollars US in 2011.  Canada is now the worlds leading markets for U.S. produced goods, while Mexico follows just behind in the second position.
  • North America, as a region, has employed the principles of economic comparative advantage to produce, export and sell competitively priced products to the countries which are members of other trading blocs such as the member nations of the EU.  End products sold on global markets routinely have components, sub-assemblies and other value-added items incorporated into them that have their origin in each of the North American Free Trade Agreement signatory countries.  When a product is manufactured in China, the amount of input material of U.S. origin that makes its way into the final product is negligible.
  • As a result of the NAFTA, U.S. export of services to Mexico and Canada have tripled. In services, the United States recorded a trade surplus of US $30 billion vis-à-vis its two NAFTA partners.
  • In addition to gains in services, the export of U.S. agricultural products to Mexico increased dramatically during the period January 1, 1994 to the present.
  • The North American Free Trade Agreement forced  comparatively underdeveloped Mexico to direct public policy at increasing economic efficiency and transparency, which has contributed to the increased political diversity and stability that the country has enjoyed.

Those that decry the NAFTA make points on the other side of the ledger:

  • Critics assert that trade gains made on the services side of the agreement have been eclipsed by a 3:1 loss on the goods side of the equation.
  • The union supported Economic Policy Institute released a report in 2011 that highlights job losses that have been experienced in states such as Michigan, Indiana, Ohio, Kentucky and Tennessee, with jobs in those states going to lower wage laborers in Mexico.
  • Some contend that, although jobs have been created for Mexican workers as a result of the dynamic set into motion by the North American Free Trade Agreement, even Mexican wages for these positions have been depressed as a result of competition for the production of the same goods by primarily Chinese and Indian laborers.
  • Others say that a surge of U.S. food exports to Mexico has put a strain on the Department of Agriculture’s ability to inspect goods resulting in potential health hazards for U.S. citizens, as well has disrupted small scale agricultural production causing a rise in illegal immigration.

Despite the fact that twenty years may seem to be a sufficient time frame during which to assess the true impacts of the NAFTA, it is most likely that as the twenty-first century progresses North American Free Trade Agreement watchers (both supporters and detractors) will be able to assess the landmark agreement’s effect on the combined economic fortunes of  four hundred and fifty million Americans, Mexicans and Canadians with greater clarity and precision.

Read the primary source for this post at the kccu.org

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