Marketing

NAFTA Benefits

On January 1, 1994, the North American Free Trade Agreement between the United States, Canada, and Mexico (NAFTA) entered into force. NAFTA created the world's largest free trade area, which now links 450 million people producing $17 trillion worth of goods and services.

A 2003 report by the Congressional Budget Office observed that it was difficult to precisely measure the effects of NAFTA. It estimated that NAFTA likely increased annual U.S. GDP, but by a very small amount

– “probably no more than a few billion dollars, or a few hundredths of a percent.” In some sectors, trade-related effects could have been more significant, especially in those industries that were more exposed to the removal of tariff and non-tariff trade barriers, such as the textile, apparel, automotive, and agriculture industries.

Many economists and other observers have credited NAFTA with helping U.S. manufacturing industries, especially the U.S. auto industry, become more globally competitive through the development of supply chains. Much of the increase in U.S.-Mexico trade, for example, can be attributed to specialization as manufacturing and assembly plants have reoriented to take advantage of economies of scale. As a result, supply chains have been increasingly crossing national boundaries as manufacturing work is performed wherever it is most efficient. A reduction in tariffs in a given sector not only affects prices in that sector but also in industries that purchase intermediate inputs from that sector.

Indeed, 20 years after NAFTA Mexico exports more manufactured goods than the rest of Latin America combined. And although the country remains highly dependent on exports to the United States, it is slowly diversifying its export markets. Between 2006 and 2013 exports to the U.S. as a percentage of total Mexican exports dropped from 88% to 80%.

There are many criticism for the agreement also and many studies showing the negative effect of the agreement. But...