North American Free Trade Agreement - NAFTA
Categories: International, Econ
The three North American countries, the U.S., Canada, and Mexico, all signed NAFTA, the North American Free Trade Agreement, which kicked into gear in 1994. NAFTA dramatically reduced trade barriers, as well as investment barriers, between this trio of economic strongholds.
NAFTA meant that clothes and cars could be exported from Mexico and imported into the U.S., without Mexico having to pay nearly as much as before in U.S. tariffs. NAFTA meant that the U.S. became Mexico’s largest supplier of goods. It’s a two-way street though; Mexico imported stuff from the U.S. too, like machinery and medical instruments, without the U.S. paying high tariffs or dealing with highly restrictive quotas. Like the U.S., Canada imported lots of low-tariff cars from Mexico. The U.S. and Canada already had a pretty trade-friendly relationship before NAFTA, so their relationship wasn’t impacted as much.
Before NAFTA, a 30% tariff on export goods to Mexico was common. Afterwards, many tariffs were reduced and completely done away with. Plus, physical borders were made to be more efficient for trade. Nobody misses all that paperwork from before.
Not everyone was on board at the time of signing, but nonetheless, it got passed. One of the reasons NAFTA got passed was the addition of measures to prepare for the negative environmental impacts NAFTA would potentially cause.
In general, free trade benefits both the sellers and buyers in the international market...well, their GDP, at least. There are criticisms of how NAFTA has affected some low-income labor groups, but nobody would dispute that it increased economic output for all countries involved.
For now, NAFTA is still in effect, but will likely soon be replaced with the United States-Mexico-Canada Agreement, which renegotiated free trade terms, and has been signed by all three countries, but has not yet been ratified. The changes made are mainly designed to lower the trade deficit of the U.S., giving the U.S. more control over imposing quotas (especially on cars) and duty fees. This new agreement will make trade a bit less free in North America, but it also added more labor and environmental regulations.
