When the North American Free Trade Agreement took effect in 1994, it created the largest free trade area in the world at that time. By increasing trade and investment, reducing tariffs and addressing non-tariff barriers, the leaders of Canada, Mexico and the United States hoped to grow their countries’ economies and raise living standards across the continent.
“NAFTA worked, fundamentally shaping North American economic relations, driving integration between Canada and the United States’ developed economies and Mexico’s developing economy,” says Colin Robertson, vice president of the Canadian Global Affairs Institute and a former Canadian diplomat.
More trade with neighbors
In many measurable ways, NAFTA has been a major success. U.S. trade with its two neighbors has grown at a faster rate than its economic activity with the rest of the world. The value of U.S. exports to Mexico reached $231 billion last year, with Michigan ranking third among all U.S. states ($12 billion), and for the Midwest, the cross-border relationship with Canada is especially valuable. Canada serves as the largest export market for nine of the 11 states in this region (Kansas and Nebraska are the lone exceptions).
In states such as Michigan and Ohio, much of this cross-border trade centers on the automotive industry, where cars and their various parts are built via supply chains that send components across the border multiple times on their way to completion.
In fact, intermediate goods (not-yet-completed products) from Canada and Mexico accounted for half of all total imports from these countries. Free trade is essential to preserving these cross-border supply chains. According to the Canadian Embassy, trade with Canada supports close to 9 million jobs in the United States. The Mexico Institute estimates that nearly 5 million jobs in the U.S. depend on trade with Mexico.
But from the start, the three-nation agreement has failed to fully recognize how changes in North American trade would negatively affect certain workers and industries, says Christopher Wilson, deputy director of the Mexico Institute.