Benefits of free trade

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.

  • Critics who predicted that a free trade agreement with Mexico would cause a mass movement of American companies to Mexico have been proved wrong:

  • 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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    For more on NAFTA

    FMF Policy Bulletin/15 July 2003

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