The signing of the NAFTA created the largest free trade area and market in the world at that time. NAFTA is a trilateral free-trade deal that came into force in January 1994, signed by US President Bill Clinton, Mexican President Carlos Salinas, and Canadian Prime Minister Jean Chrétien. NAFTA removed most of the tariffs that each country levied on the import of goods from the other countries in the Agreement. The effects of NAFTA are still hotly debated today in the USA with many arguing about whether it brought about the intended effects.
The primary purposes of NAFTA were to create a larger market and to reduce barriers to trade for countries involved in the Agreement. If barriers to trade such as tariffs were removed, trade between the countries would increase. This was, in theory, mutually beneficial to all nations involved. With larger markets for their goods, demand for their goods would increase and thus more jobs would be created in each of their countries to meet this increased demand. Also, it was hoped that the NAFTA would increase cooperation for improving working conditions in North America. The NAFTA partners negotiated and implemented a parallel agreement on labor cooperation, the North American Agreement on Labor Cooperation (NAALC). The NAALC seeked to improve working conditions and living standards, and to protect, enhance, and enforce basic workers’ rights in North America. Finally, it was intended for NAFTA to help develop and expand world trade and provide a catalyst to broader international cooperation. NAFTA was a model that the North American countries wanted the rest of the world to follow. With the creation of more free trade agreements like NAFTA, tariffs would decrease and trade around the world would increase. Aside from the economic effects, NAFTA was also meant to be a springboard to increased cooperation in other non-economic issues such as security and military issues.
The signing of NAFTA was a controversial topic in the USA. While its potential to increase US exports was heavily emphasized by the US government, some of the American public and even some economic research firms felt that the USA had all to lose but nothing to gain from this Agreement. Their logic was that firms would relocate their operations from the US to Mexico and Canada where labor was cheaper. Without tariffs on imports from Mexico, a large automotive firm such as GM might want to produce cars in Mexico where wages are lower and hence production costs would decrease. This would result in the loss of thousands of American jobs (By 2012, 39.1% of all automotive jobs in North America were in Mexico, up from 27.1% of such jobs in 2000; Wharton). Also, the elimination of tariffs would make imported goods cheaper than American made products and thus Americans would buy less domestically made products, resulting in further job losses from production cuts. Similarly, the outflow of capital from the USA into Mexico would eliminate American jobs(Krugman) as there would be more investment by US firms into Canada and Mexico instead of the US.
Another argument used in the US against NAFTA was the issue of trade. Before the signing of NAFTA the US had a 1.7 billion dollar trade surplus with Mexico(CFR) and a 10.8 billion dollar trade deficit with Canada. Many Americans were worried that the trade surplus with Mexico would turn into a deficit and the trade deficit with Canada would widen even more. Americans had the somewhat misguided view that trade deficits meant that money was leaving the US economy and going into the economies of other countries. They felt that without tariffs on imported goods from Mexico and Canada, imports from these countries would increase dramatically; thereby worsening the US’s trade positions with them and leaving the US economy and by extension job creation worse off than it was before trade.
Aside from job fears, an argument against NAFTA was the claim that the agreement would hurt
