(Updated in 2013) NAFTA is highly controversial. Do the pros of NAFTA outweigh the cons?
NAFTA, or the North American Free Trade Agreement, is the world's largest free trade area. The agreement between Canada, the U.S. and Mexico links 450 million people and the $19.24 trillion in goods and services produced by the three countries. Trade has increased from $297 billion in 1993, the year before NAFTA was enacted, to $1.6 trillion in 2009 (most recent estimates) . Estimates are that NAFTA increases economic output in the U.S. by as much as .5% a year.
Some service industries, such as health care and financial services, see an increase in exports. Farm products also reap the benefits of NAFTA's lower tariffs. U.S. consumers also benefit from NAFTA. Mexican oil can be imported for less, lowering the cost of gas in the U.S. and decreasing reliance on oil from the Middle East. Lower gas prices means food can be transported more cheaply, as well. For more, see NAFTA Advantages.
NAFTA led to the loss of 500,000-750,000 jobs in the U.S., thanks to companies moving across the border to Mexico. As a result, workers in those industries affected by NAFTA could not bargain for higher wages.
NAFTA created negative consequences for Mexico, too. NAFTA allowed government-subsidized U.S. farm products into Mexico, where local farmers could not compete with the artificially low prices. As Mexicans lost their farms, they went to work in sub-standard conditions in the maquiladora program. U.S. companies also degraded the Mexican environment to keep costs low. For more, see NAFTA Disadvantages.
Does NAFTA's Pros Outweigh Its Cons?
NAFTA's disadvantages are significant. Can anything really justify the loss of entire industries in New York or Michigan, worker mistreatment for remaining workers in the U.S., or in the maquiladora program, and environmental damage along the border?
However, from an economic perspective, NAFTA is a success. Without it, the U.S. could not compete as effectively against the European Union (now the world's largest economy) or China and its trade agreements. That $1.6 trillion in increased trade is really needed after the 2008 financial crisis. Even more people would be unemployed without it.
Perhaps NAFTA should have been designed with better protections. At the same time, free trade agreements are a necessity for the U.S. when competing in an ever-more-globalized world. Article updated June 13, 2013