1. News & Issues
Send to a Friend via Email

Advantages of NAFTA

By

Advantages of NAFTA

NAFTA lowers gas prices. (Credit: Mark Renders/Getty Images)

What Are the Advantages of NAFTA?:

NAFTA created the world’s largest free trade area. It allows the 450 million people in the U.S., Canada and Mexico to export to each other at a lower cost. As a result, it is responsible for $1.6 trillion in goods and services annually. Estimates are that NAFTA increases the U.S. economy, as measured by GDP, by as much as .5% a year. (Source: USTR, Quantification of NAFTA Benefits)

What Are the Benefits of NAFTA?:

How does NAFTA benefit trade? First, it eliminates tariffs. This reduces inflation by decreasing the costs of imports. Second, NAFTA creates agreements on international rights for business investors. This reduces the cost of trade, which spurs investment and growth especially for small businesses. Third, NAFTA provides the ability for firms in member countries to bid on government contracts. Fourth, NAFTA also protects intellectual properties.

NAFTA Increased Trade in All Goods and Services:

Trade between the NAFTA signatories more than quadrupled, from $297 billion in 1993 to $1.6 trillion in 2009 (latest data available). Exports from the U.S. to Canada and Mexico grew from $142 billion to $452 billion in 2007, then declined to $397 billion in 2009, thanks to the 2008 financial crisis. Exports from Canada and Mexico to the U.S. increased from $151 billion to $568 billion in 2007, then down to $438 billion in 2009. (Source: Office of the US Trade Representative, NAFTA)

Boosted U.S. Farm Exports:

Thanks to NAFTA, agricultural exports to Canada and Mexico grew from 22% of total U.S. farm exports in 1993 to 30% in 2007. To put this into perspective, agricultural exports to Canada and Mexico were greater than exports to the next six largest markets combined. Exports to the two countries nearly doubled, growing 156% compared to a 65% growth to the rest of the world. (Source: U.S. Foreign Agricultural Service, NAFTA)

NAFTA increased farm exports because it eliminated high Mexican tariffs. Mexico is the top export destination for U.S.-grown beef, rice, soybean meal, corn sweeteners, apples and beans. It is the second largest export destination for corn, soybeans and oils. (Source: USTR, NAFTA Facts, March 2008)

Created Trade Surplus in Services:

More than 40% of U.S. GDP is services, such as financial services and health care. These aren't easily transported, so being able to export them to nearby countries is important. NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to $106.8 billion in 2007, which dropped to $63.5 billion in 2009 (latest data available). Imports of services from the two countries were only $35 billion.

NAFTA eliminates trade barriers in nearly all service sectors, which are often highly regulated. NAFTA requires governments to publish all regulations, lowering hidden costs of doing business.

Reduced Oil and Grocery Prices:

The U.S. imported $116.2 billion in oil from Mexico and Canada as shale oil (down from $157.8 billion in 2007). This also reduces U.S. reliance on oil imports from the Middle East and Venezuela. It is especially important now that the U.S. no longer imports oil from Iran. Why? Mexico is a friendly country, whereas Venezuela's president often criticizes the U.S. Both Venezuela and Iran have started selling oil in currencies other than the dollar, contributing to the decline in the dollar's value.

Since NAFTA eliminates tariffs, oil prices are lower. The same is true for food imports, which totaled $29.8 billion in 2010 (up from $28.9 billion in 2009). Without NAFTA, prices for fresh vegetables, chocolate, fresh fruit (except bananas) and beef would be higher. (Source: USTR, NAFTA Imports)

Stepped Up Foreign Direct Investment:

Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $357 billion in 2009, up from $348.7 billion in 2007. Canadian and Mexican FDI in the U.S. grew to $237.2 billion, up from $219.2 billion in 2007. That means this much investment poured into U.S. manufacturing, finance/insurance, and banking companies.

NAFTA reduces investors' risk by guaranteeing they will have the same legal rights as local investors. Through NAFTA, investors can make legal claims against the government if it nationalizes their industry or takes their property by eminent domain. (Source: USTR, NAFTA Section Index) (Article updated February 2, 2012)

Find Out More About NAFTA:

  1. About.com
  2. News & Issues
  3. US Economy
  4. Trade
  5. NAFTA
  6. Advantages of NAFTA - Benefits and Positive Effects

©2014 About.com. All rights reserved.