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NAFTAs Winners And Losers

2017-04-29 04:23 | Network |

The North American Free Trade Agreement (NAFTA) is a pact eliminating most trade barriers between the U.S., Canada and Mexico that went into effect on January 1, 1994. Some of its provisions were implemented immediately; others were staggered over the following 15 years. Today, just over a month into its 24th year, NAFTA appears to be on its last legs. U.S. President Donald Trump repeatedly attacked it during his campaign, and two days after his inauguration, he promised to begin renegotiating the agreement, saying he expected "a very good result for Mexico, for the United States, for everybody involved."

Failing that, he has previously said he would pull out of the bloc – a relatively simple process, according to article 2205 of the treaty: "A Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties. If a Party withdraws, the Agreement shall remain in force for the remaining Parties." Experts disagree about whether Trump would need Congress' approval to abandon the agreement. This leads us to the latest development, which is that Trump has said he will not exit the agreement, but work with Mexico and Canada to renegotiate it.

Why do Trump and many of his supporters see NAFTA as "the worst trade deal maybe ever," when others see its main shortcoming as a lack of ambition – and the solution as yet more regional integration? What was promised? What was delivered? Who are NAFTA's winners, and who are its losers?

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What Did NAFTA Accomplish?

Trade Volumes

NAFTA's immediate aim was to increase cross-border commerce in North America, and in that respect it undoubtedly succeeded. By lowering or eliminating tariffs and reducing some nontariff barriers, such as Mexican local-content requirements, NAFTA spurred a surge in trade and investment. Most of the increase came from U.S.-Mexico trade, which totaled $481.5 billion in 2015, and U.S.-Canada trade, which totaled $518.2 billion. Trade between Mexico and Canada, though by far the fastest-growing channel between 1993 and 2015, totaled just $34.3 billion.

That combined $1.0 trillion in trilateral trade has increased by 258.5% since 1993 in nominal terms. The real – that is, inflation-adjusted – increase was 125.2%.

Trade volumes (million USD)  
Channel   2015   1993   Nominal increase   Real increase*  
U.S.-Canada   $518,217   $199,184   160.2%   63.5%  
U.S.-Mexico   $481,543   $85,224   465.0%   255.0%  
Mexico-Canada   $34,344   $4,052   747.6%   432.5%  
Trilateral   $1,034,104   $288,460   258.5%   125.2%  
*Adjusted for inflation using ; source: Mexican Embassy in Canada  

It is probably safe to give NAFTA at least part of the credit for doubling real trade among its signatories. Unfortunately that's where the easy assessments of the deal's effects end.

Economic Growth

From 1993 to 2015, the U.S.'s real per-capita gross domestic product (GDP) grew 39.3% to $51,638 (2010 USD). Canada's per-capita GDP grew 40.3% to $50,001, and Mexico's grew 24.1% to $9,511. In other words, Mexico's output per person has grown more slowly than that of Canada or the U.S., despite the fact that it was barely a fifth of its neighbors' to begin with. Normally one would expect an emerging market economy's growth to outpace that of developed economies.

Can We Know?

Does that mean that Canada and the U.S. are NAFTA's winners, and Mexico is its loser? Perhaps, but if so, why did Trump debut his campaign in June 2015 with, "When do we beat Mexico at the border? They're laughing at us, at our stupidity. And now they are beating us economically"?

Because, in a way, Mexico does beat the U.S. at the border. Prior to NAFTA, the trade balance in goods between the two countries was modestly in favor of the U.S. Today Mexico sells close to $60 billion more to the U.S. than it buys from its northern neighbor. NAFTA is an enormous and enormously complicated deal; looking at economic growth can lead to one conclusion, while looking at the balance of trade leads to another.

Even if NAFTA's effects are not easy to see, however, a few winners and losers are reasonably clear.

United States

Jobs ()

When Bill Clinton signed the bill authorizing NAFTA in 1993, he said the trade deal "means jobs. American jobs, and good-paying American jobs." His independent opponent in the 1992 election, Ross Perot, had warned that the flight of jobs across the southern border would produce a "giant sucking sound."

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