The Case For NAFTA

Policy Backgrounders | Trade

No. 130
Monday, November 15, 1993
by Edward L. Hudgins, Ph.D.


Introduction

"The agreement will create the world's largest open market."

The North American Free Trade Area (NAFTA) agreement would phase out all tariffs and most nontariff barriers between the United States, Mexico and Canada. The most surprising thing about NAFTA is that there is any controversy surrounding it. Both economic theory and centuries of empirical evidence support the conclusion that free trade means prosperity for all involved. History shows that when countries liberalize trade they grow stronger; when they close their markets they grow weak. A review of the pros and the cons shows that the case in favor of the agreement is overwhelming:

  • The agreement will create the world's largest open market, with a population of 360 million and a GDP of $7 trillion.
  • In the United States alone, as many as 171,000 net new jobs will be created.
  • NAFTA will be a first step toward a hemisphere-wide free trade area, allowing the United States to benefit from a special relationship with an economically fast-growing Latin lion, hungry for imports. [See the sidebar on Benefits of NAFTA.]
Figure I - U.S. -- Mexico Trade

"America's exports to Mexico have quadrupled in the past six years."

Since the mid-1980s, Mexico has been liberalizing its trade and investment laws in order to invigorate its depressed, debt-ridden, socialized economy. Mexico hopes to build on its new policies through free trade with the United States. America also will gain. Already America's third largest trading partner, Mexico is becoming an ever-larger importer of American goods. [See Figure I.]

  • America's exports to Mexico have quadrupled in the past six years, growing from $11.9 billion in 1986 to $40.6 billion in 1992.
  • Moreover, America currently runs a trade surplus with Mexico - selling more goods to Mexico than Mexico sells to the United States.

NAFTA creates economic growth and job opportunities for Americans and Mexicans. Free trade is not a zero-sum game in which one side must subsist in poverty if the other is to prosper. Trade encourages more efficient production of goods and services and thus creates greater wealth.


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