Do NAFTA's 6 Pros Outweigh Its 6 Cons?

coffee is cheaper thanks to NAFTA
NAFTA lowered the prices of imports from Mexico and Canada. Photo: Silvestre Machado/Getty Images

The North American Free Trade Agreement created the world's largest free trade area. It links 450 million people. Its member economies generate $20.8 trillion. It's also highly controversial. Do the pros of NAFTA outweigh the cons?

Pros

NAFTA has six advantages. First, it quadrupled trade between Canada, Mexico, and the United States. That's because the agreement eliminated tariffs. Trade increased to $1.14 trillion in 2015.

Second, greater trade increased economic output. NAFTA boosted U.S. growth by as much as 0.5 percent a year. Three industries benefited the most from increased exports: agriculture, automotive, and services such as health care and financial services.

Third increased growth created jobs. Increased exports led to nearly 5 million new U.S. jobs. Furthermore, manufacturers created 800,000 jobs in the first four years of NAFTA.

Fourth, foreign direct investment more than tripled. U.S. businesses invested $452 billion in Mexico and Canada. Companies in those two countries invested $240.2 billion in the United States. That helped manufacturing, insurance, and banking companies.

Fifth, NAFTA lowered prices. The United States imports Mexican oil for less than before the agreement. That’s because NAFTA got rid of tariffs. This decreases reliance on oil from the Middle East. Food can also be transported for lower costs, reducing grocery bills.

 Costs are lowered for farm products, too.

Sixth, the agreement helped with government spending. That's because each nation's government contracts became available to suppliers in all three member countries. That increased competition and lowered costs. 

Cons

NAFTA also had six disadvantages. First, it led to the loss of 500,000-750,000 U.S. jobs.

 Most were in the manufacturing industry in California, New York, Michigan and Texas. Companies in some industries moved to Mexico because labor was cheap. These industries were automotive, textile, computer and electrical appliance.  

Second, job migration suppressed wages. Companies threatened to move to Mexico to keep workers from joining unions. Without the unions, workers could not bargain for better wages. This strategy was so successful that it became standard operating procedure. Between 1993 and 1995, half of all companies used it. By 1999, that rate had grown to 65 percent. 

Third, NAFTA put Mexican farmers out of business. It allowed U.S. government-subsidized farm products into Mexico. Local farmers could not compete with the artificially low prices. As a result, 1.3 million farmers were put out of business, according to the Economic Policy Institute. It forced unemployed farmers to cross the border illegally to find work. In 1995, there were 2.9 million Mexicans living in  the United States illegally. It increased to 4.5 million in 2000, probably due to NAFTA. The recession drove that figure to 6.9 million in 2007. In 2014, it fell to 5.8 million, roughly double where it was before NAFTA.

Fourth, as Mexicans lost their farms, they went to work in substandard conditions in the maquiladora program. Maquiladora is where United States-owned companies employ Mexican workers near the border. They cheaply assemble products for export back into the United States. The program grew to employ 30 percent of Mexico's labor force. 

Fifth, U.S. companies degraded the Mexican environment to keep costs low. Mexico agribusiness used more fertilizers and other chemicals. The result was $36 billion more per year in pollution. Rural farmers were forced into marginal land to stay in business. They cut down 630,000 hectares of forests per year. 

Sixth, NAFTA allowed Mexican trucks access into the United States. Mexican trucks are not held to the same safety standards as American trucks. Congress never allowed this provision to go into effect.

 

Chart of NAFTA Pros and Cons

ListProsConsWorth It?
TradeIncreased Yes
JobsCreated 5 million U.S. jobs682,900 U.S. manufacturing jobs lost in some statesYes
WagesAverage wages increasedRemaining U.S. factories suppressed wagesYes
Immigration Forced jobless Mexicans to cross the  border illegallyNo
Workers U.S. unions lost leverage. Mexican workers were exploitedNo
Environment Canada exploited shale fields. Mexican environment deterioratedNo
OilU.S. costs lowerImproved Mexican economyYes
FoodU.S. costs lowerMexican farmers went out of businessNo
ServicesU.S. exported finance and health care servicesPut Mexican companies out of businessYes
FDIIncreasedNoneYes
Government SpendingMore competitive bidding on government contracts Yes

NAFTA's Pros Outweigh Its Cons

NAFTA's disadvantages are significant. Can anything justify the loss of entire industries in New York or Michigan, worker mistreatment in the United States or in the maquiladora program, and environmental damage along the border?

But from an economic perspective, NAFTA is a success. Without it, the United States would not be as strong a competitor with the European Union or China. That's critical now that both of these trade areas rank above the United States as the world's largest economies.

The increased trade was sorely needed after the 2008 financial crisis. Even more people would be unemployed without NAFTA.

Perhaps NAFTA should have been designed with better protections. At the same time, free trade agreements are a necessity for the United States when competing in an ever more globalized world.  

In Depth: Would Trump Dump NAFTA | NAFTA Facts | NAFTA History | International Trade Pros and Cons | Free Trade Agreements: 7 Pros and Cons | CAFTA | FTAA | GATT