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Mar 20, 2017 | 19:40 GMT

Defining North American Trade

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It's been almost a quarter century since the North American Free Trade Agreement was enacted, but it has not been the only thing to shape trade.

Much has changed in the 23 years since the North American Free Trade Agreement came into force. China entered the World Trade Organization in 2001, flooding North America with cheap goods and reducing the number of U.S. manufacturing jobs in the process. Technological advances have increased worker productivity over the past two decades and have also reduced availability of low-skilled jobs. While migrant flows from Mexico into the United States were peaking in the 1990s, the net number of Mexicans migrating to the United States dropped to below zero after the global financial crisis hit in 2008. In 2006, the Mexican government launched a massive drug war that would not have been possible without a heavy injection of U.S. aid that led to the balkanization of drug cartels across Mexico.

A shale revolution took off in the United States and Canada in the early 2000s, making the continent largely energy self-sufficient. Simultaneously declining oil production in Mexico spurred a big push for energy reform to attract foreign investment into the sector just as a closer energy union developed organically with its northern neighbor: U.S. refineries better suited for processing heavy crude took in oil from Mexico while natural gas could be piped southward to fuel Mexico’s growing industrial base. With U.S. refined product exports to Mexico now at around 1 million barrels per day (roughly double the amount of crude oil Mexico sends to the United States), the United States has become a net exporter of oil to its southern neighbor. 

Trade quadrupled over these 23 years among the United States, Canada and Mexico, rising from around $290 billion in 1993 to more than $1.1 trillion in 2016. In a tariff-free zone, a robust supply chain platform and global export base developed on the continent, allowing each nation, state and province to follow the advice of the great classical economist David Ricardo: specialize in what they do best and import the rest. Parts and components now cross borders multiple times before they become part of a finished good, allowing for cost savings for the manufacturer that are then passed on to the consumer.

But there is a darker side to this story as well. NAFTA is prey to a broader anti-globalization narrative that argues free trade does more harm than good in killing tens of thousands of jobs. Of course, blaming NAFTA alone for job losses is highly misleading, particularly given the dramatic trade shifts that took place when China joined the WTO, the role of technological innovation in manufacturing, and the growth of a service economy less able to absorb labor over time. In fact, nonpartisan assessments of the impact of free trade agreements generally agree that more jobs have been gained than lost. The U.S. Chamber of Commerce estimates that 6 million jobs depend on U.S. trade with Mexico while the Washington-based Wilson Institute calculated that 4.9 million jobs depend on U.S.-Mexico trade. Nonetheless, there is little debate that individual low-skilled workers competing with low-wage labor abroad have been victims of globalization.

Defining North American Trade
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