NAFTA, the North American Free Trade Agreement, is a treaty between the U.S., Canada and Mexico. Implemented by President Clinton in 1994, NAFTA reduces tariffs (taxes on imported and exported items) between these countries. In 2008, these tariffs were removed completely by President Obama and remain nonexistent to this day. Without these tariffs, imported goods are not taxed, which encourages trade between the three North American countries. In light of President Donald Trump’s criticism and executive order regarding a renegotiation of NAFTA, many are disputing whether NAFTA is good or bad for the United States economy.
NAFTA’s free trade policies have increased U.S. trade between Canada and Mexico by over 400%. To the disadvantage of the U.S., many American labor intensive manufacturing companies moved to Mexico to profit from Mexico’s low minimum wage of around $4 versus the U.S.’s $7.25 minimum wage. According to the Economic Policy Institute’s study, close to half a million U.S. manufacturing jobs were lost to Mexico. In addition, while the part of American workers who stayed in the manufacturing industry had to endure wage cuts, as the demand for American workers decreased significantly.
The American manufacturing industry did not benefit from NAFTA, however, free trade provided growth for other industries. After NAFTA, American enterprises could buy oil from Mexico for cheaper prices. This led to cheaper transportation and allowed for more goods to be traded across North American borders at reasonable prices.
American jobs in transportation quickly increased, and further jobs were created in order to build new roads and highways. This is the result of transporting items from Mexico or Canada being much cheaper than transporting items from Japan.
American agricultural companies took advantage of the easier transportation, and began to export processed food in very large quantities. American farmers flourished, and fruits and vegetables’ cost decreased in supermarkets. However, many small Mexican farmers quickly went out of business, as their simpler tools could simply not compete with the American large-scale farmers and their modern machinery. As a result, close to 2 million Mexican farmers lost their jobs and Mexico’s once largest export, corn, decreased by 66%.
NAFTA’s effect on the U.S. economy cannot be determined exactly, as other factors have to be considered, like the rise of the technology sector. The U.S. GDP has increased slightly, however, critics of NAFTA claim that it could have increased more without NAFTA. Although the manufacturing industry in the U.S. did not completely benefit from NAFTA, only 10% of the U.S.’s total loss of manufacturing jobs can be credited to Mexico. China, on the other hand, is a not a free trade country but is replacing U.S. manufacturing jobs in much larger numbers than Mexico.
President Trump has already removed the U.S. from the Trans Pacific Partnership and believes that these treaties are hurting American jobs. On the campaign trail, he promised to withdraw from NAFTA, but after speaking to Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto, he “agreed not to terminate NAFTA at this time,” but will renegotiate it instead.