Revisiting NAFTA: integration, inequality, or is it too soon to tell?

naftaSource: University of California Atlas of Global Inequality

January 1, 2014 marked the 20th anniversary of the North American Free Trade Act, or NAFTA, signed into law by President Clinton on December 8, 1993. An outline of the values and goals of NAFTA can be found in the document’s preamble.

Before discussing NAFTA in detail, we must understand the logic behind the NAFTA treaty. The plan was that the United States and Canada, already-developed nations, would buy tariff-free goods from less-developed Mexico, where they could be manufactured at a lower cost. With the money they saved by not having to pay tariffs or import quotas, the United States and Canada would invest in more highly-developed infrastructure and the production of innovative, high-tech goods. In theory, Mexico would also profit from this agreement by reaping the benefits of innovation and technological advancements created in the United States and Canada.

The passage of NAFTA was not without controversy. On one hand, the Clinton administration and economists promised the free-trade alliance between the United States, Canada, and Mexico would generate wealth and boost the economy of the entire continent. On the other hand, unions, manufacturing workers, and middle class Americans in general feared NAFTA would effectively outsource jobs to Mexico. They were also concerned about the negative effects increased trade would have on the environment. While it is not yet possible to assess the full impact of NAFTA on its three member nations, the past twenty years have seen both positive and negative changes as a result of NAFTA. These are outlined below.

Some positive impacts:

  1. Since the advent of NAFTA, trade between the three member states has tripled. While manufacturing jobs in the United States have indeed disappeared, economists attribute this job loss not to NAFTA but to evolving technologies and Asian competition.
  2. North America has become a more integrated, efficient market for the production of advanced goods like cars, planes, and electronics. So, when you buy a vehicle that was assembled in Canada, it contains many American-made parts.
  3. American exports of services to Canada and Mexico have tripled in the past twenty years, resulting in a roughly $30 billion surplus.
  4. Mexican businesses have become more efficient and therefore wealthier, which has helped Mexico grow from an under-developed nation into a more stable democracy.

Some negative impacts:

  1. Several states, including Indiana, Kentucky, Michigan, Ohio, and Tennessee, have lost jobs to Mexico. In 2011, a U.S. research organization called the Economic Policy Institute estimated this loss to be almost 700,000 jobs.
  2. Many of the jobs transferred to Mexican workers include hard labor, unsafe working conditions, and increasingly low wages due to competition with Asian and Indian workers for low-cost manufacturing.
  3. The surge in imported food from stimulated agricultural production in Mexico has pressured U.S. food inspectors to work more quickly, at the risk of less thorough inspections, which puts American consumers at risk.
  4. Some scholars argue the disruption of the previously-protected small-scale agriculture sector in Mexico and its replacement with mass production and low wages has increased illegal immigration into the United States, where Mexican workers seek higher wages and living standards.

So, in response to the question “integration, inequality, or is it too soon to tell?”, ‘too soon to tell’ seems like the most accurate answer. While it remains unclear whether NAFTA will have a positive or negative net impact on our future, it is important that we take a few moments to understand NAFTA’s role over the past twenty years because it has shaped and will continue to shape North American economies throughout the 21st century.

Resources for teachers:

By: Nina Mast, World Affairs Council of Pittsburgh Intern