Introduction
The North American Free Trade Agreement (NAFTA) is an agreement that was ratified by the United States, Canada, and Mexico in a bid to creating the world’s largest free trade area with a population of over 450 million people. The agreement, which came into force in 1994, replaced a previous agreement that had been signed between the United States and Canada in 1988 referred to as Canada–United States Free Trade Agreement. The gross domestic product associated with the economic powerhouse created by the NAFTA agreement is approximately $24.9 trillion. That serves as a clear indication of the underlying benefit that has been brought about by the ratification of the NAFTA agreement. However, one of the critical questions that have been raised about this agreement is whether indeed the agreement has had any significant net benefits for Canadian, Mexico, and United States economies.
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When trying to evaluate the outcomes associated with the NAFTA agreement signed between Canada, Mexico, and the United States, the benefits associated with the agreement cannot be ignored considering that it has had a substantial impact on the economies. Consequently, this means that indeed the ratification of the NAFTA agreement by the three countries may have positioned them in a much more effective way allowing them to build on their capacities to achieve set out economic projections. That creates the need for having to engage in an in-depth analysis of some f the underlying benefits that can be attributed to the actual ratification of the NAFTA agreement.
The following are the main benefits that can be linked with the NAFTA agreement for the three countries involved.
Quadrupled Trade
The first key benefit that can be seen within the three countries is the fact that the NAFTA agreement has created a platform for quadrupled trade. According to Woldu, Alborz, & Myneni (2018), the three-member states of the NAFTA agreement have experienced quadrupled trade between 1993 and 2018, rising from $297 billion to $1.23 trillion. That has meant that the three countries are experienced immense growth rates in the economies, increasing profits for companies operating in the trade area, and creating more job opportunities in the three countries. That is an impact that cannot be ignored taking into account that a majority of the people in the three countries have experienced a direct impact resulting from the ratification of the trade agreement from an economic perspective.
A quadrupling of trade has also had a direct impact on consumers considering that it has helped in lowering of prices for different products and services offered in the three countries. The price margins for commodities that can be sourced from the three-member countries have reduced significantly attributed to the elimination of tariffs charged on imports and exports in the trade bloc. From an import perspective, the three countries have increased importation from the NAFTA member countries, which has helped towards creating an avenue through which to reduce price margins for different goods and services offered to the local populations. Generally, this means that the three-member countries find themselves in a much better trade position when operating under the NAFTA agreement. From this perspective, it can be argued that indeed, the economies have experienced a significant net benefit from the perspective of establishing a trade bloc that is well structured.
Increased Economic Growth
The second key benefit that can be associated with NAFTA is the economic growth that the trade bloc has boosted for all the member countries. Ramírez Sánchez, Calderón, & León (2018) argue that NAFTA has boosted economic growth in the three countries by a margin of 0.5% with the sectors benefiting from the trade including agriculture, automobiles, and services. The economic impact associated with the NAFTA agreement is evident from the fact that companies operating in any of the countries can gain entry into a bigger consumer market. An example can be seen from the significant growth in the United States farm exports to Canada and Mexico, which have experienced growth from $11 billion in 1993 to $43 billion in 2016 (Barrows, 2019). The farm exports to NAFTA countries account for 25% of total food exports from the United States.
Economists argue that the three countries are much more likely to benefit from any significant shifts in trade activities in the trade bloc, considering that this helps towards changing the market structure for all countries. The impact is mostly felt in the automobile and service industries, as the countries are shifting their focus towards commodities that can be sourced or produced in the three countries. In the automotive industry, Mexico has been positioning itself as a strategic player in the industry, as it moves towards ensuring that it can produce at least 25% of the North American cars (Ginn, Raia, & Rajagopolan, 2018). Consequently, this serves as a clear indication that continued trade between the countries would continue to have serious benefits for all member countries to the NAFTA agreement.
Increased Foreign Direct Investment
The crucial third benefit that can be noted when focusing on the NAFTA agreement is the fact that the agreement has paved the way for a significant increase in foreign direct investment between the three countries. Foreign direct investment from the United States to both Canada and Mexico have tripled since the ratification of the NAFTA agreement to $500.9 billion attributed to the economic positioning of the trade bloc (Jones, 2018). The increase in foreign direct investment tends to have benefits for the companies, involved in investment, and the countries within which they invest. Generally, this means that the ratification of the agreement has helped create a favorable economic structure through which to ensure that countries can build their respective capacities to deliver on set economic projections.
The provision of foreign direct investment means that the countries find themselves in a much more active position hat would allow them to increase opportunities for their populations to invest. One of the key advantages associated with foreign direct investment in any country is that it creates a high demand for domestic investment; thus, playing a critical role in promoting economic growth. The three-member countries have benefited significantly from the investments that are directed from other countries with the view being that it helps towards increasing their GDP in a meaningful manner. A significant provision in the NAFTA agreement reflects on the fact that the member countries are expected to protect intellectual properties, which has played a critical role in creating the demand for foreign direct investment. That has been of great value towards establishing clear legal frameworks through which companies can operate within the NAFTA trade bloc.
Created Jobs
Lastly, the benefit that the NAFTA agreement has had on the Canadian, Mexico, and United States economies revolve around the fact that it has helped create more jobs. In the United States, approximately 5 million net new jobs have been created as a direct result of NAFTA exports (Barrows, 2019). The significant growth that the countries are experiencing as a result of the growing demand within the trade bloc has only served towards creating the need for companies to expand. The ultimate impact that this has had is that it has helped build a much more viable platform through which to ensure that more people get employed as a direct result of the opportunities created by the agreement. That serves as a clear reflection of the fact that indeed, the NAFTA agreement has been notably beneficial for the member countries about their capacities in creating job opportunities.
Conclusion
The North American Free Trade Agreement (NAFTA) is considered as an agreement that helped create one of the largest free trade areas with a population of approximately 450 million people. The deal incorporates three countries, which are Canada, Mexico, and the United States. On the question of whether NAFTA has had any significant benefits to the three economies, what is evident is that indeed it has had a positive impact leading to an improvement in the economic positioning of the three countries. Some of the key benefits identified as a direct result of the ratification of the NAFTA agreement include quadrupled trade, increased economic growth, increased foreign direct investment, and create jobs.
References
Barrows, S. D. (2019). NAFTA Country Impacts: 25 Years After Implementation. Asian Social Science , 15 (6).
Ginn, V., Raia, E., & Rajagopolan, D. (2018). People Prosper from Free Trade: NAFTA and Texas. Texas Public Policy Foundation , 1-10.
Jones, S. (2018). Renegotiating the Realm of Influence: The Shifting Priorities of President Trump during NAFTA Renegotiations. Undergraduate Review , 14 (2), 28-37.
Ramírez Sánchez, J. C., Calderón, C., & León, S. S. (2018). Is NAFTA advantageous for Mexico?. The International Trade Journal , 32 (1), 21-42.
Woldu, H. G., Alborz, S., & Myneni, N. (2018). An empirical analysis of the impact of NAFTA on the economic growth of its member countries. International Journal of Business & Economics Perspectives , 13 (1).
