6 Hidden Benefits of NAFTA (2023)

6 Hidden Benefits of NAFTA (1)

The North American Free Trade Agreement (NAFTA) created the world’s largest free trade area of 454 million people. It links the economies of theUnited States, Canada, and Mexico. In 2018, the U.S. GDP was $20.5 trillion. Canada's was $1.8 trillion, and Mexico's GDP was $1.2 trillion. NAFTA's trade area has a higher GDP than the $18.8 trillion produced by the 28 countries in the European Union.

1. Quadrupled Trade

Between 1993 and 2019, trade among the three membersquadrupled from $290 billion to $1.23 trillion. That boostedeconomic growth, profits, and jobs for all three countries. It also lowered prices for consumers.

During that time, the United States increased its exportsof goods to the other twofrom $142 billion to $549 billion. That's 33% of its total exports, making Canada and Mexico its top two export markets. It shipped $293 billion to Canada and $256 billion to Mexico.

U.S. imports from its NAFTA partners were $678 billion. That's 27% of total U.S. imports. It's also more than quadruple the $151 billion imported in 1993. Mexico shipped $358 billion to the United States, and Canada shipped $320 billion.

NAFTA boosted trade by eliminating alltariffsamong the three countries.It also created agreements on international rights for business investors. That reduced the cost of commerce. It spurs investment and growth,especially for small businesses.

2019 NAFTA Trade in Goods
(In Billions of US$)MexicoCanadaNAFTA Partners
U.S. Exports to:$256.6$292.6 $549.2
U.S. Imports from:$358.0$319.4 $677.4
Total U.S. Trade:$614.6$612.0$1,226.6

2. Lowered Prices

Lower tariffs also reduced importprices. That lessened the risk ofinflationand allowed the Federal Reserveto keep interest rates low.

That's especially important for oil pricessince America'slargest import is oil.The U.S. Census reports that Mexicoshipped $15billion in oil and petroleum products in 2017. Thanks to greater U.S. shale oil production, this figure wasdown from $24 billion in 2009.Canada shipped $75 billion. That's up from $49 billion in 2009. Canada also boosted its production of shale oil.

NAFTA reducedU.S. reliance on oil imports from the Middle East andVenezuela.It was especially important when the United States banned oil imports fromIran. Why? Mexico and Canada arefriendly countries. Other oil exporters, such as Venezuela and Iran, use oil as a political chess piece. For example, both started selling oil in currencies other than the petrodollar.

NAFTA loweredfood pricesin much the same way.In 2017, food imports from Mexico were $26billion and from Canada were $24 billion, to total $50 billion. That's a 67% increase from the $30 billion imported in 2008. Without NAFTA, it's estimated that the food industry would have to pay $2.7 billion more annually to import goods—a cost that would likely be passed on to consumers in the form of raised prices.

3. Increased Economic Growth

NAFTA boosted U.S. economic growthby as much as 0.5% a year.The sectors that benefited the most were agriculture, automobiles, and services.

U.S. farm exportsto Canada and Mexico quadrupled from $11 billion in 1993 to $43 billion in 2016. It made up 25% of total food exports and supported 20 million jobs. This trade leveraged another $54.6 billion in business investment.

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

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Note

NAFTA modernized the U.S. auto industry by consolidating manufacturing and driving down costs.

Most cars made in North America now have parts sourced from all three countries. The increase in competitiveness allows the industry to fend off Japanese imports. Mexico exports more cars to the United States than Japan. Before the 2008 recession, Japan exported twice as many as Mexico.

NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to a peak of $106.8 billion in 2007. The recession hit financial services hard. By 2009, they had only risen to$63.5 billion. By 2018, service exports had improved to$95.9 billion.That includes $34.1 billion to Mexico and $61.8 billion to Canada.

An estimated 80% of U.S. GDP is comprised of services, such asfinancial servicesand health care. NAFTA eliminates trade barriers in most service sectors, which are regulated. NAFTA requires governments to publish all regulations, lowering the hidden costs of doing business.

4. Created Jobs

Some sources say that NAFTA exports created 5 million net new U.S. jobs.Most of those jobs went to17 states, but all states saw some increases.U.S. manufacturers added more than 800,000 jobs between 1993 and 1997. Manufacturers exported $487 billion in 2014. It generated $40,000 in export revenue for each factory worker.

Even imports from NAFTA partners created jobs. Almost 40% of U.S. imports from Mexico originated from American companies. They designed the products domestically, then outsourced some portion of the process in Mexico. Without NAFTA, they would have gone to China. They may not have been created at all.

5. Increased Foreign Direct Investment

Since NAFTA was enacted, U.S. foreign direct investment(FDI) in Canada and Mexico has more than tripled to $500.9 billion. In 2017, U.S. investors poured $391.2 billion into Canada and $109.7 billion into Mexico. That boosted profits for U.S. businesses by giving them more opportunities to developand markets to explore.

Canadian and Mexican FDI in the United States grew to $471.1 billion. Canadian investors sank $453.1 billion while Mexican companies invested $18 billion. That's up from $219.2 billion in 2007. That’s an additional investment that went mostly toU.S. manufacturing, insurance, and banking companies.

NAFTA protected intellectual properties. It helped innovative businesses by discouraging pirating. It boosted FDIbecause companies know that international law will safeguard their rights.NAFTA reduced investors' risk by guaranteeing that 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.

6. Reduced Government Spending

NAFTA allowedfirms in member countries to bid on all government contracts. Thatcreated a level-playing field for all companies within the agreement's borders. It cut governmentbudget deficitsby allowing more competition and lower-cost bids.

USMCA

Despite these advantages, the United States, Mexico, and Canada renegotiated NAFTA on Nov. 30, 2018. The new deal is called the United States-Mexico-Canada Agreement. (USMCA) Mexico ratified the agreement in 2019. The agreement was signed by Donald Trump on Jan. 29, 2020. Canada's Parliament ratified it on Mar. 13, 2020.

The Trump administration wanted to lower the trade deficit between the United States and Mexico. The new deal changes NAFTA in six areas. The most important is that auto companies must manufacture at least 75% of the car's components in the USMCA's trade zone.

Frequently Asked Questions (FAQs)

Who signed NAFTA?

President Bill Clinton signed the North American Free Trade Agreement Implementation Act in December 1993. This bill, passed by Congress, enacted NAFTA for the U.S. It came after government representatives from all three countries negotiated the details of the plan.

What are the benefits of NAFTA for Mexico?

NAFTA increased foreign direct investment in Mexico. It also boosted wages for Mexican workers, although those wage increases primarily benefited industrial workers in Northern Mexico.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

  1. Export.gov, "The North American Free Trade Agreement (NAFTA)."

  2. Bureau of Economic Analysis. "Gross Domestic Product, Fourth Quarter and Annual 2018 (Initial Estimate)."

  3. World Bank. "Gross Domestic Product 2018."

  4. World Bank. "GDP - Current US$) - European Union."

  5. United States International Trade Commission. "The Year in Trade 2018 Operation of the Trade Agreements Program," Page 22.

  6. Congressional Research Service. "The North American Free Trade Agreement (NAFTA)," Page 11.

  7. Congressional Research Service. "NAFTA Renegotiation and the Proposed United States-Mexico-Canada Agreement (USMCA)," Page 3.

  8. Bureau of Transportation Statistics. "Value of U.S. Exports to and Imports From Canada and Mexico by Transportation Mode."

  9. United States Census Bureau. "Trade in Goods With Canada."

  10. United States Census Bureau. "Trade in Goods With Mexico."

  11. United States Census Bureau. "U.S. Imports From Mexico by 5-Digit End-Use Code 2009 - 2018."

  12. United States Census Bureau. "U.S. Imports From Canada by 5-Digit End-Use Code 2009 - 2018."

  13. United States International Trade Commission. "U.S.-Mexico-Canada Trade Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors," Page 106.

  14. United States Department of the Treasury. "Resource Center: Iran Sanctions."

  15. United States Department of Agriculture. "U.S. Food Imports," Download "Summary Data on Annual Food Imports, Values and Volume by Food Category and Source Country, 1999-2017."

  16. A.T. Kearney. "How NAFTA Affects Us All."

  17. Peterson Institute for International Economics. "NAFTA 20 Years Later," Page 23.

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  18. United States International Trade Commission. "U.S.-Mexico-Canada Trade Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors," Page 6.

  19. Congressional Research Service. "U.S.-Mexico Economic Relations: Trends, Issues, and Implications," Page 5.

  20. NAFTA Food & Ag Trade Working Group. "Industry Facts."

  21. United States Department of Agriculture: Foreign Agricultural Service. "Fact Sheet."

  22. The Wharton School of the University of Pennsylvania. "NAFTA 20 Years Later: Do the Benefits Outweigh the Costs?"

  23. Office of the United States Trade Representative. "Canada."

  24. Office of the United States Trade Representative. "Mexico."

  25. Central Intelligence Agency. "World Factbook: North America: United States."

  26. United States Chamber of Commerce. "NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs," Page 2.

  27. Congressional Research Service. "NAFTA Renegotiation and the Proposed United States-Mexico-Canada Agreement (USMCA)," Page 27.

  28. United States Government Accountability Office. "Report to Congressional Requesters, International Trade: Foreign Sourcing in Government Procurement," Page 2.

  29. American Society of International Law. "U.S., Mexico, and Canada Reach Agreement on Renegotiation of NAFTA (September 30, 2018)."

  30. Office of the United States Trade Representative. "Ambassador Lighthizer Statement on Canada's Approval of the USMCA."

  31. The White House. "President Donald J. Trump is Keeping His Promise to Renegotiate NAFTA."

  32. United States International Trade Commission. "U.S.-Mexico-Canada Trade Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors," Page 81.

  33. Congress. "H.R. 3450—North American Free Trade Agreement Implementation Act: Actions."

  34. Council on Foreign Relations. "NAFTA and the USMCA: Weighing the Impact of North American Trade."

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FAQs

What are the 7 purposes of NAFTA? ›

The Purpose of NAFTA

Eliminate barriers to trade and facilitate the cross-border movement of goods and services. Promote conditions of fair competition. Increase investment opportunities. Provide protection and enforcement of intellectual property rights.

What are the five main points of NAFTA? ›

Expanded telecommunications trade. Reduced textile and apparel barriers. More free trade in agriculture. Mexican import licenses were immediately abolished, with most additional tariffs phased out over a 10-year period.

Who benefits most from NAFTA? ›

Although some economists might think that the United States benefited the most from NAFTA, Mexico can be seen to have gained the most benefits by having industrialized while many of the United States factories closed in the aftermath of NAFTA.

What are 2 major benefits that have resulted from NAFTA? ›

NAFTA boosted trade by eliminating all tariffs among the three countries. It also created agreements on international rights for business investors. That reduced the cost of commerce. It spurs investment and growth, especially for small businesses.

What is the most important purpose of NAFTA? ›

The agreement came into force on January 1, 1994. The goal of NAFTA is to eliminate all tariff and non-tariff barriers of trade and investment between the United States, Canada and Mexico.

What did the NAFTA accomplish? ›

In short, NAFTA created a large free-trade zone reducing or eliminating tariffs on imports and exports between the three participating countries (the U.S, Mexico, and Canada). Overall, there was an increase in trade between the three countries, and real per-capita GDP also increased slightly.

How did NAFTA benefit America? ›

NAFTA Benefits for the US

Increased Export: since the implementation of NAFTA, US exports have risen from $142 billion to well over $500 billion. US exports to Mexico and Canada rose 156% during this period, while US exports to the rest of the world grew only 65%.

Has NAFTA been successful? ›

The North American Free Trade Agreement (NAFTA) was created over 20 years ago to expand trade between the United States, Canada, and Mexico. Its secondary purpose was to make these countries more competitive in the global marketplace. It has been wildly successful in achieving both goals.

How many US jobs were lost due to NAFTA? ›

That consisted of a $126.3 billion goods trade deficit and a $7 billion services surplus. Moreover, data from the U.S. Bureau of Labor Statistics reveal that nearly 4.5 million U.S. manufacturing jobs have been lost overall since NAFTA took effect.

What is one benefit of NAFTA for Mexico? ›

Job Creation. The benefits of NAFTA for Mexico also include new jobs. The increased demand for products manufactured in Mexico has created thousands of jobs across the manufacturing industry and in other sectors of the economy.

Was NAFTA considered a success or a failure? ›

Despite what opponents of trade liberalization such as Pat Buchanan contend, the North American Free Trade Agreement has been a success by any measure. Trade among the United States, Canada, and Mexico has flourished since the passage of NAFTA, benefiting American consumers and exporters.

What are the advantages of NAFTA for the United States quizlet? ›

Terms in this set (16)

Why was NAFTA started? What are the pros of NAFTA? Increased trade, Boosted U.S. farm exports, Created trade surplus in services, reduced oil and grocery prices, and it Stepped up foreign direct investment.

Was NAFTA beneficial for the US? ›

NAFTA Benefits for the US

Increased Export: since the implementation of NAFTA, US exports have risen from $142 billion to well over $500 billion. US exports to Mexico and Canada rose 156% during this period, while US exports to the rest of the world grew only 65%.

Was NAFTA a positive or negative? ›

NAFTA was a landmark trade deal between Canada, Mexico, and the United States that took effect in 1994. It contributed to an explosion of trade between the three countries and the integration of their economies, but was criticized in the United States for contributing to job losses and outsourcing.

How did NAFTA benefit Mexico? ›

Economic Effects

However, Mexican trade underwent a rapid increase since NAFTA was put into place, with exports increasing from 8.56 percent of Mexican GDP in 1993 to 36.95 percent in 2013. This increase in exports led to a decrease in the Mexican trade deficit.

Was NAFTA successful Why or why not? ›

By easing trade between 450 million people in three countries, NAFTA more than quadrupled trade in 20 years. This boosted economic growth in all three countries. It also led to lower prices on groceries and oil in the United States.

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