How much of US — Mexico — Canada economic improvement and growth has been due to NAFTA?

Alfonso Llanes
Jul 14, 2018 · 4 min read

he Atlantic reports that “new research from the Mexico Institute at the Wilson Center, a nonpartisan think tank based in Washington, D.C., found that trade with Mexico creates approximately 4.9 million jobs in the United States. Supporters of NAFTA estimate that some fourteen million jobs rely on trade with Canada and Mexico. While the nearly two hundred thousand export-related jobs created annually by the pact pay 15 to 20 percent more on average than the jobs that were lost.”

The Council on Foreign Relations states that I”n the years since NAFTA, U.S. trade with its North American neighbors has more than tripled, growing more rapidly than U.S. trade with the rest of the world. Canada and Mexico are the two largest destinations for U.S. exports, accounting for more than a third of the total. Most estimates conclude that the deal had a modest but positive impact on U.S. GDP of less than 0.5 percent, or a total addition of up to $80 billion dollars to the U.S. economy upon full implementation, or several billion dollars of added growth per year.”

According to the U.S. Chamber of Commerce overall trade between the three NAFTA partners the U.S. — Canada — Mexico has increase from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Cross-border investment has also surged during those years, as the stock of U.S. foreign direct investment (FDI) in Mexico rose from $15 billion to more than $107.8 billion in 2014. As for job growth, six million U.S. jobs depend on U.S. trade with Mexico, a flow that has been greatly facilitated by NAFTA, which has helped eliminate costly tariff and non-tariff barriers. NAFTA has also facilitated a multi-layered integration of the U.S., Mexican and Canadian supply chains. According to the Wilson Center, twenty-five cents out of every dollar of goods that are imported from Canada to the U.S. is actually “Made in USA” content, as are 40 cents out of every dollar for goods imported into the U.S. from Mexico.

Geronimo Gutierrez, managing director of the North American Development Bank (NADB),, Mexico imports more from the U.S. these days than do all of the so-called BRIC nations combined — Brazil, Russia, India and China.

Economic Impact of Trade

The Peterson Institute for International Economics (PIIE), the United States has been $127 billion richer each year thanks to “extra” trade growth fostered by NAFTA. For the United States, with its population of 320 million at the time of that study, the pure economic payoff was thus only $400 per person, while per capita GDP was close to $50,000.”

The costs of the NAFTA compact are greatly concentrated in specific industries like auto manufacturing. On the other hand, the benefits of the trade pact are distributed widely across the U.S., as they are in any international trade agreement.

Trade economists are in unison that it has proven difficult to separate trade agreement direct effects on overall trade and investment from other elements, including quick improvements in technology, expanded trade with other countries such and unrelated domestic developments in each of the countries in the agreement.

Walter Kemmsies, managing director, economist and chief strategist at JLL Ports Airports and Global Infrastructure, notes that that “many of the job losses that are popularly blamed on NAFTA would likely have taken place even in the absence of NAFTA, in part because of growing competition from China-based manufacturers”. In the U.S. , Mauro Guillen, head of Wharton’s Lauder Institute, states that without NAFTA, many American jobs that were lost over this period would probably have gone to China or elsewhere. “Perhaps NAFTA accelerated the process, but it did not make a huge difference.”

Job Losses and Lower Wages

Morris Cohen, Wharton professor of operations and information management, argues that NAFTA on balance, been a good thing for the U.S. economy and U.S. corporations while many jobs were created in Canada and Mexico, and this economic activity created a fairly good seamless supply chain between the three nations.

NAFTA blanket benefits are difficult to measure since trade and investment are influenced by numerous other economic variables, such as economic growth, inflation, and currency fluctuations.

Newer pacts are more inclusive providing special protections for foreign investors; protecting patents and copyrights; privatizing markets for public services such as education, health, and public utilities; and standardizing regulations.

China’s Impact

Chinese traded goods grew nearly eight-fold between 1991 and 2007. By 2015, U.S. trade in goods and services with China totaled $659 billion. And yet, NAFTA continues to be blamed for most the job losses in the U.S. But China’s emergence as an economic power has made a tidal shift of world trade. Simultaneously, it has challenged much of the empirical data about how labor markets adjust to trade shocks

The benefits to the overall Mexican economy were weakened, by heavy dependence on imported intermediate inputs used in export production, as well as by Chinese competition. In Mexico and the United States, real wages have stagnated while productivity has continued to increase, leading to higher corporate profits and greater inequality.

Blaming NAFTA for all of the disturbing trends may make some critics and politician feel justified, but as recent researchers shows is growing more complex today’s economies and the current challenges to economic behavior defies any simplistic explanations while starting trade wars of protectionism have no specific end because all the unintended consequences once sa war starts and casualties begin to accumulate in the process.