How Has NAFTA Affected The Economies Of Participating Countries Since Its Inception?
November 05, 2021
The North American Free Trade Agreement, or NAFTA, was a controversial trade pact signed in 1992. Over the years, it eliminated most tariffs and other kinds of trade barriers that existed on products and services passing through the US, Mexican, and Canadian borders.
The primary intent of NAFTA was to create an effective free-trade area among the three biggest economies in North America. It came into effect in 1994. Today, it remains a force to be reckoned with unless, or until, the status quo changes.
Some Background On NAFTA
One could say that the North American Free Trade Agreement was inspired by the implementation and success of the European Economic Community between 1957 and 1993, which helped eliminate tariffs among member countries in a bid to stimulate trade.
Proponents of NAFTA argued that, by establishing a similar free-trading block in North America, the region would experience prosperity through increased production, exports, and imports. It was also expected to bring well-paying jobs for those residing in the member countries.
How Did NAFTA Affect The Economies Of Participating Countries?
Experts in the North American trade industry will tell you that NAFTA has produced mixed results since its inception. For most people, it turned out to be neither the magic bullet that a significant number of its proponents had envisioned, nor the devastating blow that its critics foretold.
In the case of Mexico, the country managed to experience higher export numbers, ranging from about $60 billion in 1994 to almost $400 billion in 2013. This surge in export figures also came with an explosion of imports, leading to an influx of higher-quality and more affordable goods for Mexican consumers.
Economic growth after the formation of NAFTA was not as quick or as impressive as member countries expected. One of the main reasons for this was that the US and Canada suffered immensely from several economic recessions during this period, including the Great Recession of 2007 to 2009.
These events overshadowed most of the benefits that NAFTA had brought about. Mexico’s GDP also grew slower when put up against those of other Latin American countries like Chile and Brazil. Its growth in wages per person was also negligible, though Mexico managed to experience a rise in it’s middle-class during the same time.
Another area that experienced minimal change among NAFTA member states was labor. This was partly due to immigration restrictions, which also led to a significant wage gap between Mexican and American workers. At the time, Mexico’s lack of proper infrastructure caused most US and Canadian companies to decide not to invest directly in the country. This meant there was no loss of jobs in the US and Canada.
However, despite all the difficulties faced in the early stages of NAFTA, things are today looking up for member countries, especially Mexico, as investments in the manufacturing sector in Mexico have soared.
Imports and exports have also increased among member states due to increased production levels, proximity, and lack of trading tariffs. Industrial parks have also increased in Mexico, and the country is now one of the biggest producers of automobiles.
Even with its issues, NAFTA has allowed all member states to benefit from it in one way or another. In addition, with tensions rising between the US and China over trade, the agreement is set to come into play now more than ever. You can learn more about the specific industries that benefited from NAFTA here.
Thinking about manufacturing in Mexico? Download this ebook to move your due diligence forward and improve your probability of success.
Start your journey into Mexico today!
50+ Questions to ask before expanding into Mexico
Thinking about expanding into Mexico? Step 1 of your due diligence process is answering all of these questions. Over the last 33 years, thousands of companies have used this guide to accelerate their expansion into Mexico.
Start Your Mexico Strategy Today!
Talk to a Tetakawi expert to discover how your company can succeed in Mexico.
Get The Tetakawi Insights Newsletter
Sign up and stay informed with tips, updates, and best practices for manufacturing in Mexico.