Importance Of North American Free Trade Agreement

The agreement opened the door to free trade by ending tariffs on various goods and services and implementing equality between Canada, the United States and Mexico. Since the implementation of NAFTA, the countries concerned have been able to say that NAFTA was the largest free trade agreement in the world when it was established on January 1, 1994. NAFTA was the first time that two industrialized countries had signed a trade agreement with an emerging country. Since NAFTA, trade between the United States and its North American neighbors has more than tripled and grown faster than U.S. trade with the rest of the world. Canada and Mexico are the top two destinations for U.S. exports, with a share of more than one-third. Most estimates conclude that the agreement has increased U.S. gross domestic product (GDP) by less than 0.5%, which equates to an additional $80 billion over the U.S. economy, with full implementation or several billion dollars of additional growth per year. NAFTA has had three major advantages. U.S. food prices were lower due to duty-free imports from Mexico.

Oil imported from Canada and Mexico has prevented the rise in gas prices. NAFTA also increases trade and economic growth for all three countries. NAFTA has long been a political objective. In 2008, then-Presidential candidate Barack Obama responded to widespread trade skepticism within the Democratic base by promising to renegotiate NAFTA to incorporate stricter labor and environmental standards. The Obama administration tried to address NAFTA issues during the Trans-Pacific Partnership negotiations, a massive trade agreement with 11 other countries, including Canada and Mexico. The TPP was deeply unpopular – Hillary Clinton ultimately opposed the deal during her 2016 presidential bid – and President Trump withdrew the United States from the TPP in one of his first official acts. When NAFTA negotiations began in 1991, the goal for all three countries was to integrate Mexico into the developed, high-income economies of the United States and Canada. The hope was that freer trade would bring stronger and more stable economic growth to Mexico by providing new jobs and opportunities for its growing workforce and discouraging illegal immigration. For the United States and Canada, Mexico has been seen as both a promising export market and a less expensive investment site that can improve the competitiveness of U.S. and Canadian businesses. In addition, many economists argue that recent U.S. production problems have little to do with NAFTA and say that domestic production was under pressure decades before the contract.

Studies by David Autor, David Dorn and Gordon Hanson, published in 2016 [PDF], have shown that competition with China has had a much greater negative impact on the United States.