NAFTA has changed the way business is done for the better in North America for over two decades. The once-controversial agreement has often been a topic of uncertain skepticism, yet the record shows a clear pattern of payoffs for the US.
What is NAFTA?
In 1994, the North American Free Trade Agreement (NAFTA) was implemented as a measure to simplify international commerce among the three North American countries and lower or eliminate tariffs. It created the world’s largest free-trade area of over 450 million people. This arrangement has successfully eliminated most barriers to free trade and investment between the US, Canada, and Mexico. NAFTA benefits to the United States are numerous. Through various programs and partnerships, the three member companies can more easily function as a regional unit, trading goods and talent back and forth playing off each country’s unique strengths.
In the 1990s, if you asked a person on the street, “What is NAFTA,” you might receive conflicting opinions. Initially viewed with skepticism, the agreement was considered by some as a liability for US trade, essentially giving rival Mexico an unfair advantage in the competition for world trade. Yet out of the free-trade pact came a new paradigm in which the US and Mexico formed a unique partnership in an era of regionalism to cooperate in the global market.
NAFTA Benefits for the US
In addition to this mutually beneficial partnership between the US and Mexico arising out of NAFTA, the US benefits from the agreement in other ways, too.
- Increased Trade: the US benefited from a significant rise in foreign trade among the three partners. In 1993, the three countries traded an estimated value of $297 billion, whereas, in 2015, that number had risen to $1.14 trillion.
- Increased Export: since the implementation of NAFTA, US exports have risen from $142 billion to well over $500 billion. US exports to Mexico and Canada rose 156% during this period, while US exports to the rest of the world grew only 65%.
- Lower Prices on Essentials: due to the reduced cost of international trade, thanks to tariff elimination, the cost of importing food and fuel into the US was significantly reduced, resulting in lower prices at home.
- Automotive Industry Improved: thanks to the consolidation of manufacturing, the specialization of skilled labor, and the reduced cost of international manufacturing, the automotive industry saw significant modernization and streamlining. The US automotive sector, once a regional industry, is now sourcing inputs from both NAFTA partners and able to dominate the global market.
- Foreign Direct Investment Increased: with barriers to foreign direct investment (FDI) eliminated or reduced, US businesses now have more opportunities to invest in Mexico and Canada and grow their viability and profitability. Likewise, the agreement brought in plenty of foreign investment from these partners. In 2007, US FDI from Mexico and the US reached $219 billion and then $240 billion in 2015, fueling innovation and business in the US.