What is NAFTA?

NAFTA has been at the center of America’s trade policy talks for a while now. One of Donald Trump’s big talking points that differed from Hillary Clinton was to get rid of NAFTA, calling it “a catastrophe for our country.”

So, how has NAFTA affected the U.S. job market and trade?

The North American Free Trade Agreement (known as NAFTA), is a trade deal between Canada, the United States, and Mexico. The agreement was signed by the U.S. in 1994 under the Bill Clinton administration but was negotiated and planned out under the George H.W. Bush administration.

The point of NAFTA was/is to encourage economic integration among the U.S., Mexico, and Canada, which in turn would boost economic prosperity for all three countries. Under NAFTA each country cut their tariffs, like taxes on imports and exports to almost zero.

Business Insider gave an example as to why this trade deal is supposed to be more beneficial to each country. “Trade between countries can theoretically improve economic efficiency and make everyone wealthier by allowing countries to specialize in what they’re good at. If the U.S. can grow corn more efficiently than Mexico, and Mexico can build cars more efficiently than the U.S., then it makes more sense for the U.S. to grow a lot of corn and Mexico to build a lot of cars, and then for both countries to trade cars for corn with each other, rather than for each country to less efficiently do both things on its own.”

However, after NAFTA was signed some believed that this has hurt U.S. workers. In a 2016 study, economists Shushanik Hakobyan and John McLaren explored NAFTA’s effect on the U.S. workers market by looking at wage growth among workers.

There was a mixed effect that they found. Average workers weren’t as affected by NAFTA, while a concentrated minority saw a significant decrease in wage growth that could of been from the agreement. From the study they concluded that blue-collar jobs were more likely to be affected than those with college education, and executives who saw benefits from the agreement.

NAFTA blog.png
Business Insider shows the decline of manufacturing jobs, and events that have had an affect. Credit: Business Insider

“Workers saw wage growth drop by as much as 17 percentage points relative to wage growth in unaffected industries…If you were a blue-collar worker at the end of the ’90s and your wages are 17 percent lower than they could have been, that could be a disaster for your family.” McLaren said during an interview with UVA Today.

Because NAFTA allowed more blue-collar jobs to be exported to Mexico or Canada many Americans blamed that the agreement caused a collapse in many factory towns.

However, there are several other factors to look at, other than the agreement.

  1. Manufacturing jobs actually were in decline before NAFTA, meaning NAFTA cannot be blamed entirely for the loss of blue-collar jobs.
  2. A factor that has probably been the biggest problem for the U.S. job market is when China joined the World Trade Organization (WTO) in 2001, which is where the decline of manufacturing employment really began to dip.

    NAFTA blog 2.png
    U.S. trade deficit by region. Trump claims that Mexico is America’s biggest deficit, but China, and then the EU have been. Credit: Business Insider
  3. The 2007-2008 financial and housing crisis which tanked the blue-collar employment field.
  4. Other factors like automation and technological advances, which require fewer works than what was needed in the past.

NAFTA has had some positive affects for the U.S. Trade among Canada, Mexico, and the U.S. has increased from about 290 billion in 1993 to over 1 trillion by 2016, according to data cited by the Council on Foreign Relations. NAFTA has also helped the auto sector become a global competitor due to the cross-border supply chain. Its also helped American farmers as U.S. agricultural exports have nearly doubled to Mexico, and have increased to about 44 percent to Canada according to the Office of the U.S. Trade Representative.

For more information:

CNN Money:
NAFTA: What it is, and Why Trump Hates it

The Washington Post:
History Lesson: More Republicans than Democrats supported NAFTA
The North American Free Trade Agreement (NAFTA) Explained
U.S. and Mexico Appear to Take First Steps Towards Renegotiating NAFTA, Documents Suggests
What is NAFTA, and What Would Happen to U.S. Trade Without it?

NPR:
Economists Toast 20 Years of NAFTA; Critics Sit Out the Party

Business Insider:
Trump Wants to Renegotiate NAFTA – Here’s What You Need to Know

International Business Times:
Is NAFTA Good? Americans Split on North American Free Trade Agreement as Trump Vows to Renegotiate

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