The North America Free Trade Agreement (NAFTA) and the European Union (EU) have both similarities and differences. As pointed out by Manag i et al. (2015), the main similarity between NAFTA and EU is that both have an agreement with a single approach to trade between the countries. The trade agreement of NAFTA members is between the United States (US), Canada, and Mexico, while the EU trade agreement is among the 28 member states of the EUnamely France, Germany, Italy, Spain, Portugal, Belgium, and Italy just to mention a few. On the other hand, the main difference between NAFTA and the EU is that the EU member states use the same Euro currency, whereas the NAFTA member states have their own different currency. Besides, traveling between the EU nation is VISA free, while moving between NAFTA countries requires a VISA.
The main benefit of being an EU member state is the free trade and removal of the non-tariffs barrier that reduces cost and prices for consumers due to the use of a single currency. Also, the main benefit of NAFTA is that it has eliminated all tariffs between the three countries, and this has reduced the cost of commerce, leading to increased investment and growth. However, NAFTA members do not have a single currency, meaning they do not enjoy the elimination of exchange rate fluctuation. A single currency also reduces transaction costs, increase price transparency, and facilitate market expansion. However, the use of a single currency can lead to the loss of autonomous monetary policy increases the risk of uneven development within the separate currency area.
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In the last five years, the trade between the US and its NAFTA members has more than doubled, despite President Trump’s strict trade policies. Canada and Mexico are still the two largest US exports destination, and this accounts for almost one-third of the total. On the other hand, the US is also the largest destination of imports from Canada and Mexico.
Reference
Managi, S., Kawajiri, H., & Tsurumi, T. (2005). Regional economic integration and trade: An empirical evaluation of NAFTA and EU. International Journal of Agricultural Resources, Governance and Ecology , 4 (1), 1-23.
