NAFTA at 20: Overview and Trade Effects

Source: M. Angeles Villarreal, Ian F. Fergusson, Congressional Research Service, CRS Report for Congress, R42965, February 21, 2013

…NAFTA was controversial when first proposed, mostly because it was the first FTA involving two wealthy, developed countries and a developing country. The political debate surrounding the agreement was divisive with proponents arguing that the agreement would help generate thousands of jobs and reduce income disparity in the region, while opponents warned that the agreement would cause huge job losses in the United States as companies moved production to Mexico to lower costs. In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters. The net overall effect of NAFTA on the U.S. economy appears to have been relatively modest, primarily because trade with Canada and Mexico account for a small percentage of U.S. GDP. However, there were worker and firm adjustment costs as the three countries adjusted to more open trade and investment among their economies.

The rising number of bilateral and regional trade agreements throughout the world and the rising presence of China in Latin America could have implications for U.S. trade policy with its NAFTA partners. Some proponents of open and rules-based trade maintain that a further deepening of economic relations with Canada and Mexico will help promote a common trade agenda with shared values and generate economic growth. Some opponents argue that the agreement has caused worker displacement and that NAFTA needs to be reopened. One possible way of doing this is through the proposed d Trans-Pacific Partnership (TPP). The ongoing TPP negotiations, launched in the fall of 2008, may not result in a reopening of NAFTA, but could alter some of the rules and market access commitments governing North American trade and investment….