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NAFTA's Economic Upsides
CARLA A. HILLS is Co-Chair of the Council on Foreign Relations and Chair and CEO of Hills & Company. From 1989 to 1993, she served as U.S. Trade Representative.See more by this author
In the 20 years since it entered into force, the North American Free Trade Agreement has been both lauded and attacked in the United States. But to properly assess NAFTA’s record, it is important to first be clear about what the agreement has actually done. Economically speaking, the answer is a lot. By uniting the economies of Canada, Mexico, and the United States, NAFTA created what is today a $19 trillion regional market with some 470 million consumers. The U.S. Chamber of Commerce figures that some six million U.S. jobs depend on trade with Mexico and another eight million on trade with Canada. NAFTA was the first comprehensive free-trade agreement to join developed and developing nations, and it achieved broader and deeper market openings than any trade agreement had before.
NAFTA did that by eliminating tariffs on all industrial goods, guaranteeing unrestricted agricultural trade between the United States and Mexico, opening up a broad range of service sectors, and instituting national treatment for cross-border service providers. It also set high standards of protection for patents, trademarks, copyrights, and trade secrets. To preserve the rights of investors, it prohibited barriers such as local-content and import-substitution rules, which require producers to ensure that specified inputs are produced domestically.
For the United States, the economic consequences of these reforms -- which have also had social, political, and cultural impacts -- have been dramatic. If North America is to remain a uniquely competitive region, however, it will need to build on NAFTA’s success by opening markets beyond its borders.
TRADE AND GROWTH
NAFTA ignited an explosion in cross-border economic activity. Today, Canada ranks as the United States’ largest single export market, and it sends 98 percent of its total energy exports to the United States, making Canada the United States’ largest supplier of energy products and services. Mexico is the United States’ second-largest single export market. Over the past two decades, a highly efficient and integrated supply chain has developed among the three North American economies. Intraregional trade flows have increased by roughly 400 percent, from around $290 billion in 1993 to over $1.1 trillion in 2012. Every day, nearly $2 billion in goods and services cross the United States’ northern border and roughly $1 billion worth cross its southern border.