NCPA - National Center for Policy Analysis

THE ECONOMIC BENEFITS OF NAFTA TO THE UNITED STATES AND MEXICO

June 16, 2008

Although there have been calls to renegotiate or suspend the North American Free Trade Agreement (NAFTA), after nearly 14 years under the treaty it is clear that both Mexico and the United States have benefitted from more open trade, says Heidi Sommer, a junior fellow with the National Center for Policy Analysis.

The Mexican economy is the world's 13th largest.  Yet it is the United States' third-largest trading partner and the second-largest market for U.S. exports.  This partnership owes much to NAFTA; two-way trade between Mexico and the United States has more than quadrupled since the agreement was implemented, says Sommer:

  • The value of Mexican goods exported to the United States grew from $39.9 billion in 1993 to $210.8 billion in 2007, an increase of 437 percent.
  • The United States exported $136.5 billion worth of goods to Mexico in 2007, up 242 percent since 1993.
  • Over that period, gross domestic product (GDP) grew 50 percent in the United States and 46 percent in Mexico.

The United States is the largest source of foreign direct investment (FDI) in Mexico, accounting for over half of the $19 billion invested there in 2006.  In addition, U.S. companies contribute around 50 percent of the investment funds for Mexico's maquiladoras -- factories that assemble products (such as apparel, auto parts and electronic goods) from imported U. S. components for export back to the United States.  These firms account for almost half of Mexican exports and over $41 billion in annual sales, says Sommer. 

Investment in Mexico has helped increase the efficiency of U.S. domestic production.  Many manufacturing companies are able to reduce costs by shifting assembly of their products to the maquiladoras.  This has helped boost U.S. manufacturing output, which rose by almost 60 percent from 1993 to 2006.  By contrast, output increased only 42 percent in the 13 years before NAFTA, says Sommer.

Source: Heidi Sommer, "The Economic Benefits of NAFTA to the United States and Mexico," National Center for Policy Analysis, Brief Analysis #619, June 16, 2008.

For text:

http://www.ncpa.org/pub/ba619/

 

Browse more articles on Economic Issues