NAFTA at 20: Misleading Charges and Positive Achievements

Policy Brief
14-13
May 2014

The North American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada, which took effect 20 years ago, continues to face divided public opinion. Opponents of free trade agreements (FTAs) cite NAFTA as a job-killing precedent, while proponents argue that the economic gains from NAFTA have been considerable and unappreciated. This Policy Brief analyzes the record of NAFTA in order to clear the air so that the benefits and challenges of trade can be examined objectively. In the last 20 years, trade, investment, and economic interdependence among the three countries have grown dramatically. Nearly 2 million US jobs now depend on trade with Mexico. Closer integration with the United States and Canada has transformed Mexico's auto industry from a minor backwater into a major automotive powerhouse. The analysis presented here argues that increased trade with Mexico led to some US job losses during adjustments but that these were very small compared to the usual churn and to job losses due to other factors over the same period. The pact contributed some to wage losses in manufacturing but not to any lasting and significant increase in US unemployment. Also contrary to what opponents predicted, NAFTA did not encourage more illegal immigration to the United States. Above all, NAFTA created a new foundation for US-Mexican relations by facilitating Mexico's transition to a multiparty political state with a market-oriented system.

Data disclosure: The data underlying this analysis are available here [xlsx].