The North American Free Trade Agreement (NAFTA) was put in place in 1994, creating a trade bloc between the United States, Mexico, and Canada.
For all three countries, this trade agreement had a huge impact. In many cases, NAFTA improved the fortunes of companies and workers in all three countries.
NAFTA has also helped make North America a more tight-knit community. Not only is there more trade between the three nations, there is also more travel. Many digital nomads from Canada and the United States are taking advantage of lower living costs in Mexico, for example. Meanwhile, migrants from Mexico are now resettling in the United States to pursue opportunities and careers. As they do so, they pay taxes and put in hard work for their new home. Frequently, they also send money back to Mexico, which supports the local economy.
Let’s take a quick look at how NAFTA benefited the United States and Mexico. (Canada benefited from NAFTA as well, but that’s a different tale for another day.)
NAFTA Generated Economic Growth
NAFTA helped to stimulate economic growth in both countries by eliminating tariffs and non-tariff barriers, thus facilitating the flow of goods and services across borders. This led to increased trade, investment, and overall economic activity.
The Trade Deal Has Spurred Innovation
When people cross borders, they bring new ideas with them. Trade agreements encourage the sharing of knowledge between countries, including Mexico, Canada, and the United States.
Many companies have set up shop specifically to provide services for companies and individuals taking advantage of NAFTA. Many American consulting companies have set up offices in Mexico to help local companies understand how they can take advantage of NAFTA. Likewise, financial service firms have made it easier to send money to the Mexico are from the United States, and vice versa.
Now, you can find local Mexican experts who are helping American and Canadian digital nomads set up shop in beautiful Mexican beach towns.
Trade Increased Both Ways
As a result of the deal, trade between the United States and Mexico has increased significantly. In the decades since the agreement was implemented, bilateral trade has more than tripled. This has helped to diversify each country's market access and has created new opportunities for businesses on both sides of the border.
NAFTA Created Jobs in Both Mexico and the USA
NAFTA contributed to job creation in both countries by promoting increased trade and investment. In the United States, exports to Mexico have helped to support millions of jobs. Likewise, in Mexico, the influx of foreign direct investment and growth in the manufacturing sector generated employment opportunities, particularly in industries such as automotive, aerospace, and electronics.
Access to Consumer Goods
The removal of trade barriers under the trade deal led to a greater variety of products being available at lower prices for consumers in both countries. This allowed consumers to benefit from a wider selection of goods and services, often at better prices.
Foreign Investment has Increased
NAFTA helped to attract foreign investment in both the United States and Mexico by creating a more stable and predictable business environment. Investors were encouraged to take advantage of the increased market access and favorable investment conditions in both countries.
Supply Chains Are Stronger Thanks to NAFTA
NAFTA enabled the development of integrated supply chains between the United States and Mexico. This is especially true in the automotive and manufacturing sectors. This has led to increased efficiency and competitiveness for businesses operating within the trade bloc.
During the COVID-19 pandemic, supply chains in the NAFTA bloc often proved more resilient than supply chains stemming from China. Now, companies on both sides of the border are looking to strengthen North American supply chains.
Enhanced Cooperation Between the US and Mexico
NAFTA also played a role in fostering closer diplomatic and economic ties between the United States and Mexico. This increased cooperation between the two countries has had positive effects on environmental policy, labor standards, and the fight against organized crime.
Despite these benefits, NAFTA has also faced criticism for contributing to job displacement and wage stagnation, particularly in the United States. The agreement has been renegotiated and replaced by the United States-Mexico-Canada Agreement (USMCA), which entered into force in 2020. The USMCA aimed to address some of the concerns raised by NAFTA while maintaining the overall framework of the agreement.