Real-life Case Study: NAFTA: Is Free Trade a Good Idea?

Trade

In the 1980s and early 1990s, debate raged over the North American Free Trade Agreement (NAFTA). The goal of this agreement was to eliminate all trade restrictions among Mexico, Canada, and the United States. It included provisions for more than 9,000 products and services.

NAFTA has given Mexico's electronics assembly industry a boost.

Pro-NAFTA Arguments Supporters of NAFTA argued it would benefit the economies of all three nations. They believed NAFTA would increase trade and promote healthy competition. They also argued that employment in some U.S. industries would increase, as the elimination of tariffs made American goods less expensive in Mexico and Canada.

Anti-NAFTA Arguments NAFTA critics argued that without tariffs, items produced in Mexico would be cheaper than American-made goods, resulting in widespread unemployment among American industrial workers. The authors of NAFTA anticipated this possibility and reduced its effects by slowly phasing out tariffs and by providing compensation to many workers who lost jobs because of NAFTA.

Consequences NAFTA went into effect January 1, 1994. By 2005, it was clear that NAFTA had a generally positive impact on the economies of all three trading partners. American exports of farm products, technology, and textiles to Mexico increased over pre-NAFTA levels.

Canada's trade with the United States increased by 80 percent, while its trade with Mexico doubled. And although the United States did lose thousands of jobs because of increased imports, the growth in exports to Canada and Mexico resulted in thousands of newly created jobs.

Applying Economic Ideas

1. How has NAFTA benefited the economies of all three nations that signed it?
2. The table shows some of the major provisions of NAFTA. Which of these provisions benefit the United States? Which have a negative impact? Explain.

Table of Contents