Learn how NAFTA changed ecommerce for the countries involved.
North American Free Trade Agreement (NAFTA) formed a foundation for all future trade agreements created between North American countries. NAFTA went into effect in January 1994, which nullified most tariffs on goods traded between the United States (U.S.), Mexico, and Canada. A major focus of the agreement was to liberalize trade in textiles, agriculture, and automobile manufacturing. The agreement intended to place protective measures over intellectual property, put dispute resolution mechanisms in place, and integrate safety measures for labor and environmental laws in the countries of North America. The goal of the agreement was to reduce or even eliminate trade barriers so that the three countries could all be more of a competitive force in the global marketplace and international ecommerce.
By engaging in NAFTA, the mature economies of Canada and the United States and the growing economy of Mexico have altered North America’s economic standing. However, NAFTA, having been in place for over 25 years, needed adjustments as the world changed. The USMCA (United States-Mexico-Canada Agreement) replaced NAFTA and went into effect in January 2020 and is the current trade agreement between the U.S., Canada, and Mexico.
|How NAFTA benefited the U.S.
|How NAFTA benefited Mexico
|How NAFTA benefited Canada
|Trade between the three participating countries tripled during NAFTA. The combined trade between the three North American countries was more than the U.S. traded with the rest of the world.
|Mexican agricultural exports tripled to the U.S. during the application of NAFTA. Hundreds of thousands of jobs were created in the auto manufacturing field. Similar to the U.S., NAFTA increased productivity and decreased consumer prices in Mexico.
|NAFTA provided Canada with major cross-border investment benefits. The U.S. and Mexico’s investments in Canada tripled. Investments from the United States and Mexico make up over half of Canada’s FDI (foreign direct investment) stock, which increased from $70 billion (1993) to over $368 billion (2013).
|NAFTA provided the framework for Canada and Mexico to quickly became two of the largest trading partners with the United States of America.
|NAFTA initiated Mexico’s transformation from one of the most isolated economies to one of the most internationally active economies, resulting in many U.S.-based businesses to seek out manufacturers in Mexico rather than off-shoring in China.
|Canada is the number one importer of the U.S.’ agricultural products, and during NAFTA, the agricultural trade between Canada’s exports of agriculture to the United States and Mexico have also more than tripled since 1994.
|Trade with Canada and Mexico created the opportunity for millions of U.S. jobs. Hundreds of thousands of jobs were export-related jobs, which paid more than jobs that were potentially lost because of NAFTA (brokers, customs agents, etc.).
|Policymakers of Mexico viewed NAFTA as a way to accelerate and secure the reforms of the Mexican economy. Mexico’s leaders were able to reduce public debt, implement balanced-budget rules, maintain inflation, and increase international reserves.
|Consumers benefited greatly from the decreased prices and improved quality of goods. NAFTA produced lower consumer prices and higher productivity.
|How NAFTA hurt the U.S.
|How NAFTA hurt Mexico
|How NAFTA hurt Canada
|NAFTA may be to blame for the job losses and stagnant low wages in the U.S. Mexico offered lower-cost and lower-wage competition versus the U.S., so many companies moved production there.
|The poverty rate hadn’t improved since 1994. The promise of raising Mexican wages to ensure that U.S. companies did not move production to Mexico was not fulfilled. While many Latin American countries had increased income, Mexico’s per capita income only rose annually at an average of 1.2%.
|NAFTA intended to close or lessen the productivity gap between the U.S. and Canadian economies, but Canada’s productivity was stagnant at 72% of the U.S. levels.- Canadian auto-assembly manufacturers lost significant share of market.
|- Canada’s “low investments in research and development (R&D) and relatively lower expenditures on information technology.”
|The decline in U.S. manufacturing jobs may have been due to NAFTA. About a third of the U.S. auto industry was lost, while the Mexican auto industry had an increase of over 400,000 workers.
|Mexican farmers experienced major competition from heavily subsidized U.S. agriculture, which led to job loss in Mexico.
|Canada relied on the U.S. for 75% of its exports and became almost solely dependent on trade with the U.S., losing out on the many benefits of having diverse trade partners.
|U.S. workers blame NAFTA for wages not keeping up with the increase of labor productivity, which led to an American-first approach to future trade policies.
|Unemployment in Mexico contributed to the increase of undocumented immigrants in the U.S.
|While Mexico’s northern neighbors benefited from growing foreign investments, like high-tech manufacturing and increased wages, Mexico struggled to adapt to this new economy.
NAFTA was not the sole catalyst for the distress that these three countries experienced in the nineties, many of the problems that arose across the U.S., Mexico, and Canada were due to other factors. For example, the addition of China to the World Trade Organization (WTO) in 1999 and technological advancements caused major shifts in the world of trade and ecommerce. These many changes made the need for a new trade agreement in North America much more urgent. The USMCA will remain in place for 16 years but will be re-evaluated in six years. The adjustments made to the USMCA are intended to improve economies, and the agreement will stand as the new model for all future U.S. trade deals.