NAFTA: What’s Good, and What’s Concerning
Trade deals are important in the modern world in order for countries to build economic relationships with each other and continue expanding their economies. The trade deal of particular importance in this blog is the North American Free Trade Agreement (NAFTA). The members of this agreement include Canada, Mexico, and the United States. NAFTA came into effect in January of 1994 with the hopes to reduce and ultimately eliminate the majority of tariffs between the three members. NAFTA has sharply increased trade between the three countries “from roughly $290 billion in 1993 to more than $1.1 trillion in 2016” which also helped improve the GDP of the three countries as well (Wharton School of Business, 2016). Despite this undoubtedly good outcome of the deal, there are many topics of concern that have resulted from the implementation of NAFTA, including environmental and humanitarian issues, economic struggles, and employment. Some of these points of concern are being addressed in the new trade agreement set to replace NAFTA, the United States-Mexico-Canada Agreement (USMCA).
Firstly, I would like to touch upon the positives. As I have stated, NAFTA allowed for the overall trade between the three countries to grow from $290 billion to over $1.1 trillion dollars over a span of 23 years. The GDP of each member country has grown since the trade deal has been enacted. The deal allowed for the free flow of trade goods between the three countries, reduce and eliminate tariffs, and provide employment opportunities to people living in these three countries.
Positives for the USA
The United States has thrived and maintained its place as an agricultural superpower during NAFTA due to its heavily subsidized agricultural sector. These subsidies allow the United States to outcompete both Canada and Mexico’s overall agricultural sectors (Weisbrot, Merling, Mello, Lefebvre & Sammut, 2018). NAFTA has allowed for US foreign direct investment to grow exponentially as it rose from $15 billion to a little over $107.8 billion in 2014 (Wharton School of Business, 2016). Additionally, an estimate of six million jobs in the United States depend on trade with Mexico, which is a result of NAFTA’S opening of barriers. Manufacturing jobs outsourced to Mexico help create automobile parts that are then imported back into the United States for a lower price to ultimately provide more affordable automobiles to the American consumer.
Positives for Mexico
Because Mexico is still considered a developing nation, any increase to the country’s GDP is a positive. Beside the fact that the United States remains as the agricultural giant in the trade deal, Mexico has thrived in its exports of avocados and other tropical fruits (Kurtzleben, 2015). Mexico’s export of avocados outcompeted California’s avocado production and claimed its prize as the avocado giant. The outsourcing of manufacturing jobs from the USA to Mexico also provided an increase of 430,000 workers since 1994 in Mexico’s auto sector alone (Council on Foreign Relations, 2020). Furthermore, the trade deal has allowed for cheaper commodities to be available to the Mexican public due to the opening of borders between the USA and Mexico.
Positives for Canada
Foreign direct investment in Canada rose from $70 billion in 1993 to over $368 billion in 2013, mainly from American businesses. Agricultural trade between the USA and Canada “has more than tripled since 1994, as did Canada’s total agriculture exports to NAFTA partners,” which include grains and dairy (Council on Foreign Relations, 2020).
Areas of Concern
NAFTA was not a perfect trade agreement. A lot of environmental and humanitarian issues have resulted from the NAFTA trade deal. Mexico’s currency, the Mexican Peso has undergone so much inflation since NAFTA began. The United States has seen a loss of roughly 600,000 automobile manufacturing jobs because they have been outsourced to Mexico. This has affected communities living in the Rust Belt of the United States that heavily rely on the auto sector for their livelihoods. Mexico’s poverty rate in 2014 was higher than its poverty rate in 1994 (Weisbrot et al., 2018). How can a trade deal that boosts the stocks and economy of a country also increase the poverty rate in that country?
This figure shows the exchange rate between the Mexican peso and the American dollar. It shows how the exchange rate had spiked by the time NAFTA was implemented. The Mexican peso underwent a lot of inflation.
Drug Trade and Violence
Because NAFTA was able to reduce and eliminate many tariffs, open borders between the three countries helped expand the drug trade. According to the Bureau of Transportation Statistics, 2.8 million trucks crossed the border in 1994, and that number almost doubled to 4.3 million by 2001. The amount of drugs that would be smuggled into the country through those trucks could be immense. This would give cartels a wonderful opportunity to smuggle drugs into the country. As a result, about 90 percent of cocaine from Colombia would be smuggled across the United States’ southwest border a decade after NAFTA was first implemented (2016 International Narcotics Control Strategy Report).
Because the agricultural sector of the United States maintained its dominance with NAFTA, many Mexican farmers could not generate enough income due to the devaluing of their crops and inability to compete with the USA. In the Mexican state of Guerrero, many farmers have had to resort to poppy farming and assist in the opium trade to generate enough income (Financial Times, 2015). The lack of economic support from the Mexican government leaves many farmers without options.
Personally, I find this to be one of the saddest results of NAFTA. AP News interviewed a farmer from Guerrero, and the farmer stated that he and other fellow farmers feel ashamed for growing poppies and contributing to the drug trade, but they don’t have other crop options to make ends meet. Now, nearly half of the heroin found in the USA is produced from Mexico (National Drug Threat Assessment, 2014). As the United States continues its War on Drugs; the Mexican government must abide and assist in making poppy farming illegal, making poppy farming perpetually risky. The number of homicides in Mexico went from 8,864 in 2007 to 31,174 in 2017 (Instituto Nacional de Estadística y Geografía). There is no doubt that the implementation of NAFTA has worsened the effects of the War on Drugs and has not made the situation any better or more peaceful for the country of Mexico.
Employment and Migration
The US’s ability to maintain its power as an agricultural giant has left many small farmers from the southern regions of Mexico out of work, forcing them to migrate north and ultimately reach the United States. Unfortunately, many of these farmers and their families do not make it to the USA and are forced to stay and work for less pay and worse working conditions in monoculture (single crop) farms in northern Mexico, or they go to cities and work in low paying jobs in factories. Cheap corn from the United States has devalued corn in Mexico, which is a staple in the Mexican diet and heritage. Corn is Mexico’s most important crop, and the inability for the country to compete with the USA has been absolutely devastating (Galiano, 2017). While the increased presence of manufacturing jobs in Mexico, also known as maquiladoras, has provided employment to people in Mexico, but only to people in large urban areas in the northern regions of Mexico. These jobs do not pay Mexican workers very well because US companies take advantage of the less strict labor laws in Mexico.
Because NAFTA has gotten rid of so many small farms in both the USA and Mexico, there has been an increase in monocultures between the two countries. Monocultures are unsustainable because they require energy intensive agricultural practices and threaten biodiversity. Monocultures require extensive amounts of land to produce a singular crop and can deprive soils of nutrients due to the lack of biodiversity. Additionally, much of the land that used to be considered small farms in Mexico then become sites that are suited for mining projects or illegal logging (McAuliff, 2014).
The increase of manufacturing factories in Mexico has also led to the increase of air pollution in its growing cities. From my own personal experience, I have noticed how much the smog has increased in the cities of Guadalajara and Leon from 2003 to now. Canada has also experienced deforestation due to the space needed for oil drilling, shale fields, and tar sand extraction. The increased extraction of fossil fuel only serves to make climate change worse.
Thoughts and Reflection
As I stated earlier, there are many positives for the United States that came from NAFTA, particularly cheaper produce, cars, and less dependency on domestic oil reserves. There are winners and losers in trade deals. However, how can a trade deal like this be justified? I wonder if the price of cheaper food is worth stripping land from 2 million Mexican farmers (Johnson & Fromartz, 2017). Is it justified to lose 600,000 manufacturing jobs in the USA just so American corporations can exploit the lax labor and environmental laws in Mexico? I recognize that I too have benefited and have enjoyed the feeling of buying cheap produce at the supermarket and enjoying my vacations and taking advantage of Mexico’s ever-increasing inflation. However, the environmental destruction, displacement of people, and violation of human dignity is something that I cannot abide by. I tend to think trade deals can be very harmful to various communities. The unintended consequences of a trade deal can be very serious, especially in the case of Mexico. Increased smuggling of drugs across the border along with violence and the need to grow illicit crops to make a living are all complicated things. The new trade deal that is supposed to replace NAFTA is said to have measures to safeguard the environment and implement better labor laws in Mexico (PBS News, 2020). Canada just ratified the USMCA agreement on March 13th and the new agreement will expire in 16 years. Despite the new provisions and measures that would try to ensure better pay and working conditions to people in Mexico, economists generally believe not much will change (Galiano, 2017).
NAFTA and the USMCA: Weighing the Impact of North American Trade. (2020, January 24). Retrieved March 26, 2020, from https://www.cfr.org/backgrounder/nafta-and-usmca-weighing-impact-north-american-trade
NAFTA’s Impact on the U.S. Economy: What Are the Facts? (2016, September 6). Retrieved from https://knowledge.wharton.upenn.edu/article/naftas-impact-u-s-economy-facts/
Kurtzleben, D. (2015, February 16). How NAFTA fueled the great avocado boom. Retrieved from https://www.vox.com/2015/2/16/8047991/nafta-avocados-fruit-vegetables
Financial Times, Risky Life Of Mexican Poppy Farmers. (2015). Retrieved from https://www.youtube.com/watch?v=oFYtT4A_5aQ
DEA, 2014 National Drug Threat Assessment. (2014, November 1). Retrieved from https://www.dea.gov/documents/2014/11/01/2014-national-drug-threat-assessment
AP News, Farmers cultivate poppies to feed U.S. markets. (2015). Retrieved from https://www.youtube.com/watch?v=IScnh33O8qQ
Johnson, K., & Fromartz, S. (2017, August 7). NAFTA’s ‘Broken Promises’: These Farmers Say They Got The Raw End Of Trade Deal. Retrieved from https://www.npr.org/sections/thesalt/2017/08/07/541671747/nafta-s-broken-promises-these-farmers-say-they-got-the-raw-end-of-trade-deal
McAuliff, M. (2014, March 12). NAFTA 20 Years On: Trade Deal Allowed Export Of Environmental Disasters. Retrieved from https://www.huffpost.com/entry/nafta-environment_n_4938556?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALLauyMcrTKnhMlnzhzmEHze65Hm5ymoZEJD1frLMzKgYKeRZNY_z4-9rLyeVPCn3cj95fIUDAQTx32cUl_DeMXfgxAZNqmbvR4JnWYDC5UEdgY3R1K85oT190lxeq0HWl2MInF9NyRLyI4DBUA9mn-0cnNikzOjlNYQmwhLWNq4
Galiano J., Al Jazeera News, Nafta: Us-grown corn threatens Mexican crop heritage. (2017). Retrieved from https://www.youtube.com/watch?v=KSGHrd-dcls&feature=youtu.be
Weisbrot, M., Merling, L., Mello, V., Lefebvre, S., & Sammut, J. (2018). Did Nafta Help Mexico? An Update After 23 Years. Mexican Law Review, 1(1). doi: 10.22201/iij.24485306e.2018.1.12515
Nawaz A. & Wallach L.,What are the differences between NAFTA and the USMCA? (2020, January 16). PBS News. Retrieved from https://www.pbs.org/newshour/show/what-are-the-differences-between-nafta-and-the-usmca
Fox News. (2016, November 30). 90% of cocaine in U.S. comes through Central America and Mexico, report finds. Retrieved from https://www.foxnews.com/world/90-of-cocaine-in-u-s-comes-through-central-america-and-mexico-report-finds