Why, then, is NAFTA so severely criticized? This success has come with a cost. One of the problems with NAFTA is that it's reduced U.S. jobs. A second disadvantage is that it has exploited Mexico's farmers and its environment? Find out more about the how and why was NAFTA created, and whether it has successfully fulfilled its purpose. (Updated February 5, 2012)
In fact, NAFTA and the EU's Treaty of Maastricht were both signed in 1993. The EU is now the world's largest economy ($15.3 trillion GDP in 2011), but if you combined the economies of NAFTA's members -- the U.S. ($15.04 trillion), Canada ($1.389 trillion) and Mexico ($1.657 trillion) -- it would be easily be the largest, at $18.086 trillion.
The U.S. was a beneficiary of low-cost imports from Canada and Mexico, which increased from $151 billion to a record $568 billion in 2007. NAFTA reduced gas and food prices, by removing tariffs on Mexican oil imports.
The 2008 financial crisis put a damper on trade, so that by 2009 U.S. exports had only risen to $438 billion, while imports had only recovered to $397 billion.
How did NAFTA contribute to these problems? First, NAFTA cost more than half a million jobs, as manufacturers moved to Mexico to take advantage of lower labor costs. The four states that suffered the most were California, New York, Michigan and Texas because they had had a high concentration of motor vehicles, textiles, computers, and electrical appliances industries. Lower wages in Mexico meant that workers in the remaining U.S. factories could not bargain for higher wages. Companies could now threaten to move to Mexico if labor unions negotiated too hard.
Mexicans suffered, too. Rural Mexican farmers could not compete with low-cost corn and other grains that were exported by subsidized U.S. farm corporations. NAFTA put more than a million Mexican farmers were out of business. The ones that remained were forced to use more fertilizers and farm marginal land, resulting in more pollution and deforestation.
Labor was cheap in Mexico because they had no labor rights or health protection. Thanks to NAFTA, nearly a third of Mexico's labor force were in this "maquiladora" program.
One NAFTA disadvantage was prevented. NAFTA called for unlimited transportation between the three member countries. This would have created a dangerous situation, since Mexican trucks were not up to U.S. safety standards, and Mexican roads could not have carried the heavier U.S. trucks. This problem was averted in 2008, when Congress prohibited this portion of NAFTA from ever being carried out.