NAFTA, or the North American Free Trade Agreement, was created 20 years ago to expand trade between the U.S., Canada and Mexico. It's secondary purpose was to make these countries more competitive in the global marketplace. It has been wildly successful in achieving this. NAFTA is now the largest free trade agreement in the world.
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 June 13, 2013)
It took three U.S. Presidents more than a decade to get NAFTA off the ground. President Ronald Reagan conceived of a North American trade agreement to compete with the Treaty of Rome, later to become the European Union.
In fact, NAFTA and the EU's Treaty of Maastricht were both signed in 1993. The EU is now the world's largest economy ($15.79 trillion GDP in 2012), but if you combined the economies of NAFTA's members -- the U.S. ($15.94 trillion), Canada ($1.513 trillion) and Mexico ($1.788 trillion) -- it would be easily be the largest, at $19.24 trillion. (Source: CIA World Factbook, Rank Order GDP)
By easing trade between 444 million people in three countries, NAFTA more than tripled trade in less than 20 years. Trade between its members -- U.S., Canada and Mexico -- grew from $297 billion in 1993 to $1.6 trillion in 2009 (latest figures available). U.S. exports increased from $142 billion to a peak of $452 billion in 2007. U.S. farm exports benefited from lower Mexican tariffs, and grew 156%. Services, such as banking and health care, quadrupled between 2003 and the 2007 peak.
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.
Growth comes with costs, and NAFTA was no exception. The economies of all three countries benefited, but some sectors suffered for it. NAFTA is criticized for destroying American jobs and lowering U.S. wages. Others accuse NAFTA of exploiting Mexico's workers, destroying its farms and polluting its environment. In addition, NAFTA increases the U.S. trade deficit.
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.