NCPA - National Center for Policy Analysis

Benefits of Free Trade

July 8, 2003

The 1994 North American Free Trade Agreement (NAFTA) between the United States, Mexico and Canada eliminated trade barriers among the three nations. As a result, the whole U.S. economy is better off, says Daniel T. Griswold.

NAFTA helped to stimulate America's longest post-war economic expansion:

  • Between 1994 and 2000, civilian employment in the U.S. economy rose by a net 12 million; the unemployment rate fell from 6 percent to 4 percent; and U.S. manufacturing output rose 40 percent while the volume of imported manufactured goods doubled.
  • In the first eight years of NAFTA, manufacturing output in the United States rose at an annual average rate of 3.7 percent -- 50 percent faster than during the eight years before the agreement.
  • The number of Americans employed in manufacturing grew by half a million in the first five years of NAFTA.
  • U.S. manufacturers invest an average of about $2 billion a year in Mexico, compared to almost $200 billion invested in domestic manufacturing annually.
  • U.S. companies currently own more direct manufacturing investment in the tiny Netherlands ($34.7 billion) than they do in Mexico ($19.7 billion).

In addition, the economic competition from NAFTA has helped to bring about a more competitive political system in Mexico. Vicente Fox was elected president only a few years after NAFTA was enacted, ending decades of one-party rule. NAFTA has also encouraged higher regulatory standards in Mexico and more cross-border cooperation on environmental issues.

Source Daniel T. Griswold, "NAFTA Benefits Arizona," July 2, 2003, Cato Institute.

 

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