Implemented nearly 22 years ago, the North American Free Trade Agreement (NAFTA) has become one of the most misunderstood trade agreements in history. Due to a massive dissemination of misinformation about NAFTA and free trade in general, a large segment of the U.S. population continues to believe that the agreement is not in the interest of the United States. Nothing could be further from the truth.

U.S.-Canadian Integration

Under NAFTA, the elimination of barriers to trade, investment and the movement of people across our shared border has advanced north-south integration. This has stimulated the development of sophisticated supply chains, increased capital flows, enhanced productivity, advanced the spread of technology, increased the number of product choices while keeping prices low for consumers, created more good-paying jobs, and elevated North American competitiveness.

In this dynamic global business environment, the United States and Canada don’t just make goods for each other — they make goods together for world markets. As a result of this deep relationship, it’s not uncommon for a product to begin its manufacturing process in the United States, be shipped to a plant in Canada where valuable components are added and tested, be trucked back to a U.S. facility for completion and packaging, then be exported to a European buyer.

As a result, last year $658 billion worth of goods crossed the U.S.-Canada border. And that figure doesn’t include trade in services. As a result, Canada, with a population of 35 million, continues to be the United States’ largest trading partner, responsible for 16.6 percent of all U.S. trade. What’s more, Canada is the biggest merchandise export market for the majority of American states.

The integration of the United States and Mexican economies has transformed the nature of the bilateral relationship from one of competition to partnership.

U.S.-Mexico Trade and Investment

Last year, the United States exported merchandise to Mexico valued at $240 billion, nearly the same amount as U.S. exports to China, Germany, the United Kingdom and Russia combined. This surprises many since Mexico, the second largest U.S. export market, has an economy less than one-tenth the size of the United States’ and its population of 122 million is the world’s 11th largest. NAFTA is a primary reason for this.

But the benefits don’t end there. On average, each Mexican consumed nearly $2,000 of U.S. goods in 2014. In comparison, on average, each Chinese citizen spent about $90 on American goods.

According to Carla Hills, former U.S. Trade Representative, about half of our trade with Mexico takes place between related companies. As with Canada, we simply don’t just make goods for each other, we make goods together for world markets. Consequently several U.S. and Mexican industries have come to rely on each other, contributing to a rich North American supply chain.

Mexico is the United States’ third largest supplier. Interestingly, “a full 40 percent of the content of U.S. imports from Mexico was originally made in the United States, and it is likely that the domestic content in Mexican imports from the United States is also very high,” according to the Woodrow Wilson International Center for Scholars in Washington, D.C.

In comparison, 4, 3, and 2 percent of U.S. imports from China, Brazil and India, respectively, are comprised of U.S. origin content, the Center notes.

In The Spotlight

“The integration of the United States and Mexican economies has transformed the nature of the bilateral relationship from one of competition to partnership. U.S. jobs, competitiveness and economic growth all have benefited from the nation’s relationship with Mexico,” the Woodrow Wilson International Center says.

Global Engagement also Presents Challenges

International engagement by American firms has produced some remarkable results. For example, on average, U.S. companies that export employ twice as many workers, produce twice as much output, and generally offer better health insurance and pensions than non-exporting companies, reports the Peterson Institute of International Economics. Today, trade accounts for nearly one in every five jobs, says the Business Roundtable, an association of chief executive officers of leading U.S. companies.

But global engagement doesn’t benefit everyone. Individuals with higher skills and companies with intellectually rich or higher-technology products tend to benefit the most. Due to greater global engagement, many lower skilled employees and lower-tech industries often find it difficult to compete against foreign industries — especially those that are unfairly subsidized or protected by their governments.

Leveling the Field Is Key

The United States is one of the world’s most open economies in the world. This has created many advantages here at home. Thus, the average U.S. import tariff on goods is less than 1.5 percent, according to the United States Trade Representative. This is significantly lower than the average foreign country tariff of 5.9 percent, calculated by the World Economic Forum. And this doesn’t reflect the non-tariff erected to keep American products out.

NAFTA has gone to great extents to level the playing field among Canada, the United States and Mexico. And when the field is leveled, American workers and industries can compete with anyone. How do we know? The United States maintains a global manufacturing trade deficit with the world, but a manufacturing trade surplus with its free trade agreement partners.

This article appeared in Global Impact, a Great American Insurance Group publication.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is CEO of World Trade Center BN, chair of the Upstate New York District Export Council, and founder of The Manzella Report and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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Talkback (3)

  • Guest (Alan Camhi)

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    John,

    I'm impressed by your carefully reasoned support of NAFTA. So much of what we hear about it is from a political/ideological perspective, yet you've managed to marshal facts to arrive at a more global perspective. Continue the good work. And Merry Xmas and Happy New Year to you, Karla, and your family.

    Alan

  • Guest (Jory)

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    Nafta and the other so called free trade agreements have been disastrous for American manufacturers and is one of the primary reasons middle class income had declined for 20+ years to the point the American middle class is vanishing. Many factories and millions of good jobs are gone off shore or south of the border to satisfy our ever increasing demand for low priced goods. I guess in reality we can only blame the person we see in the mirror every morning. High wages, high quality, low prices. Pick any two.

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