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Advantages of NAFTA
6 Benefits of NAFTA You May Not Even Realize
Source: https://www.thebalance.com/advantages-of-nafta-3306271
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NAFTA lowers your grocery bill. Photo: Tetra Images/Getty Images
US Economy
By Kimberly Amadeo
Updated November 05, 2016
NAFTA created the world’s largest free trade area of 450 million people. It's an economic
powerhouse of $20.08 trillion, as measured by Gross Domestic Product (GDP).
That's because it linked the economies of the United States ($17.97 trillion), Canada ($1.6
trillion), and Mexico ($2.2 trillion). That trade area is greater than the economic output of the 28
countries in the entire European Union. (Source: "Rank Order GDP," CIA World Factbook,
2015.)
1. Quadrupled Trade
Between 1993-2015, trade between the three members quadrupled, from $297 billion to $1.14
trillion. That boosted economic growth, profits, and jobs for all three countries. It also lowered
prices for consumers. (Source: Top Trading Partners, U.S. Census. Canada-Mexico Relations,
Government of Canada.)
During that time, the United States increased its exports of goods from $142 billion to $517
billion. That's a third of its total exports. Canada ($280 billion) and Mexico ($236 billion) were
the top two U.S. export markets in 2015. Imports from Canada ($295.2 billion) and Mexico
($294.7 billion) increased from $151 billion in 1993 to $590 billion, or 26% of total U.S. goods
imports. (Source: 2015 Total Trade, United States Census)
NAFTA boosted trade by eliminating all tariffs between the three countries. It also created
agreements on international rights for business investors.
This reduced the cost of trade. That spurs investment and growth, especially for small
businesses.
2. Lowered Prices
Lower tariffs also reduced import prices. That also lessened the risk of inflation and allowed the
Fed to keep interest rates low.
That's especially important for oil prices, since America's largest import is oil.
The U.S. imported $144.2 billion in oil from Mexico and Canada. Thanks to greaterU.S. shale
oil production, this figure was down from $157.8 billion in 2007. NAFTA reduced U.S. reliance
on oil imports from the Middle East and Venezuela. It was especially important when the U.S.
banned oil imports from Iran. Why? Mexico and Canada are friendly countries. Other oil
exporters, such as Venezuela and Iran, don't think twice about using oil as a political chess piece.
For example, both started selling oil in currencies other than the petrodollar.
NAFTA lowered food prices in much the same way. Food imports totaled $39.4 billion in 2013,
up from $28.9 billion in 2009. It lowered the prices of fresh vegetables, chocolate, fresh fruit
(except bananas), and beef the most. (Source: USTR, NAFTA Imports)
3. Increased Economic Growth
NAFTA boosted U.S. economic growth by as much as 0.5% a year. The sectors that benefited
the most were agriculture, automobiles, and services.
U.S. farm exports to Canada and Mexico grew 156%.
That's compared to a 65% increase to the rest of the world. To put this into perspective,
farm exports to Canada and Mexico alone were greater than exports to the next six largest
markets combined. Total farm exports were $39.4 billion in 2015.)
NAFTA increased farm exports because it eliminated high Mexican tariffs. Mexico is the top
export destination for U.S.-grown beef, rice, soybean meal, corn sweeteners, apples and beans. It
is the second largest export destination for corn, soybeans and oils. (Source: U.S. Foreign
Agricultural Service, NAFTA)
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
auto industry is less regional and more globally oriented. That more competitive nature allows
the industry to fend off Japanese imports. Mexico exports more cars to the United States than
Japan. Before the recession, Japan exported twice as many as Mexico. By 2020, Mexico will
manufacture nearly 25% of all North American cars. (Source: "NAFTA, 20 Years Later,"
Knowledge@Wharton, February 19, 2014.)
NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to a peak
of $106.8 billion in 2007. However, the recession hit financial serviceshard, so services haven't
quite recovered. By 2009, they had only risen to $63.5 billion. By 2012, service exports had
improved to $88.6 billion. (Source: USTR, Quantification of NAFTA Benefits. NAFTA)
More than 40% of U.S. GDP is services, such as financial services and healthcare. These aren't
easily transported, so being able to export them to nearby countries is important. NAFTA
eliminates trade barriers in nearly all service sectors, which are often highly regulated. NAFTA
requires governments to publish all regulations, lowering hidden costs of doing business.
4. Created Jobs
NAFTA exports created nearly 5 million new U.S. jobs. Most of those jobs went to 17 states,
but all states saw some increases. U.S. manufacturers added more than 800,000 jobs between
1993 and 1997. That's because manufacturers exported $487 billion in 2014, generating nearly
$40,000 in export revenue for each factory worker. (Source: "NAFTA Triumphant: Assessing
Two Decades of Gains," U.S. Chamber of Commerce, October 27, 2015.)
Even imports from NAFTA partners created jobs. That's because nearly 40% of U.S. imports
from Mexico originated with 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. (Source: "NAFTA, 20 Years Later,"
Knowledge@Wharton, February 19, 2014.)
5. Increased Foreign Direct Investment
Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more
than tripled. It reached $452 billion by 2012 (latest statistics available). That boosted profits for
U.S. businesses by giving them more opportunities to develop, and markets to explore.
Canadian and Mexican FDI in the United States grew to $240.2 billion, up from $219.2 billion in
2007. That's additional investment went mostly to U.S. manufacturing, insurance, and banking
companies.
NAFTA protected intellectual properties. It helped innovative businesses by discouraging
pirating. It boosted FDI because companies know that their rights will be protected by
international law. NAFTA reduced investors' risk by guaranteeing 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. (Source:
"NAFTA Section Index," USTR.)
6. Reduced Government Spending
NAFTA allowed firms in member countries to bid on all government contracts. That created a
level-playing field for all companies within the agreement's borders. It cut government budget
deficits by allowing more competition and lower-cost bids.