Fast Facts About the World's Largest Trade Agreement (2024)

Six Changes Trump's New Agreement Has Made to NAFTA

On Sept. 30, 2018, the United States, Mexico, and Canada renegotiated the North American Free Trade Agreement. The Trump administrationwanted to lower the trade deficitbetween the United States and Mexico.

The United States-Mexico-Canada Agreementhas been ratified by each country's legislature. Mexico ratified the USMCA in 2019. The United States ratified the agreement on Jan. 29, 2020. Canada ratified it on March 13, 2020.

The new deal changes NAFTA in six areas.

The most notable impact is that auto companiesmustmanufacture at least75% of the car's components in Canada, Mexico, or the United States—up from 62.5%. In addition, at least 30% of the car must be made by workers earning at least $16 an hour (that's three times what the average Mexican autoworker currently makes). That increases to 40% in 2023. Autos that don't meet these requirements will be subject to tariffs.

President Trump wasn't successful in gettingMexico to cut its value-added tax or end the maquiladora program. In general, Trump prefersbilateral trade agreementstomultilateral onesbecause he believes they improve America's bargaining power.

History and Purpose of NAFTA

It took three U.S. presidents more than a decade to get NAFTA off the ground. In 1980,President Ronald Reagancampaigned on a North American trade agreement to compete with the Treaty of Rome. The Treaty had laid the foundation for theEuropean Union. NAFTA and the EU's Treaty of Maastricht were completed in 1992. President H.W. Bush negotiated NAFTA, while President Bill Clinton signed it in January 1993.

NAFTA Pros and Cons

Determining if the pros outweigh the cons depends on who you are and how NAFTA has affected you. American workers who lost their jobs to NAFTA are against it. On the other hand, the jobs outsourced to Mexico lowered prices for gas and food. This is something everyone benefits from, but most don’t realize it's because of NAFTA.​

Advantages of NAFTA

By easing trade between 450million people in three countries, NAFTA more than quadrupledtrade in20 years. This boosted economic growth in all three countries. It also led to lower prices on groceries and oil in the United States.

Grocery prices went down because NAFTA lowers the cost of products imported from Mexico and Canada. While this means less demand for American agricultural products, there is high demand for lower food prices because food is more expensive every year.

Oil prices went down because the United States could now import much of its oil from Mexico and Canada. The elimination of tariffs plus the lack of political tension makes this cheaper than importing from the Middle East.

Even though NAFTA increased theU.S. trade deficit, it still benefited the U.S. economy by increasing exports. NAFTA increased imports of the products Canada and Mexico have comparative advantages in. But at the same time, it increased exports of what the United States does best, like services.

Disadvantages of NAFTA

Growth comes with costs, and NAFTA was no exception. NAFTA is criticized for destroying half a million American jobs and lowering U.S. wages.In addition, NAFTA increasedthe U.S. trade deficit.

How did NAFTA contribute to these problems? First, it cost jobs when manufacturers moved to Mexico to take advantage of lower labor costs. The four states that suffered the most were California, New York, Michigan, and Texas. Before NAFTA, these states had a high concentration of factories for motor vehicles, textiles, computers,and electrical appliances. Those were the industries most likely to move to Mexico.

Lower wages in Mexico reduced U.S. wages and benefits. Workers in the remaining U.S. factories could not bargain for higher wages, according to Kate Bronfenbrenner of Cornell University. Companies could now threaten to move to Mexico if labor unions negotiated too hard, as detailed in her report, "Uneasy Terrain: The Impact of Capital Mobility on Workers, Wages, and Union Organizing."

Some accuse NAFTA of exploiting Mexico's workers, destroying its farms, and polluting its environment.Rural Mexican farmers could not compete with low-cost American subsidized corn and other grains. The Mexican farmers who managed to stay in business were forced to use more fertilizers and farm marginal land to survive. That created more pollution and deforestation.

Labor in Mexico’s maquiladora program was cheap because workers had no labor rights or health protection. Thanks to NAFTA, almost a third of Mexico's labor force works in the poor conditions of these manufacturing jobs.

U.S. Regional Trade Agreements

Whenever other regional trade agreements are proposed or negotiated, the facts about NAFTA are brought up over and over again. NAFTA must fit within the context of other U.S. regional trade agreements, such as theCentral American Free Trade Agreement, theFree Trade Area of the Americas, and the Middle Eastern Free Trade Initiative.