Visualizing NAFTA's Mixed Track Record Since 1994

On January 1, 1994, the North American Free Trade Agreement (NAFTA) officially came into effect, virtually eliminating all tariffs and trade restrictions between the United States, Canada, and Mexico. As Visual Capitalist"s Jeff Desjardins reminds readers:

Bill Clinton, who lobbied extensively to get the deal done, said it would encourage other nations to work towards a broader world-trade pact. “NAFTA means jobs. American jobs, and good-paying American jobs,” said Clinton, as he signed the document, “If I didn’t believe that, I wouldn’t support this agreement.”

Ross Perot had a contrary perspective. Lobbying heavily against the agreement, he noted that if it was ratified, Americans would hear a giant “sucking sound” as jobs went south of the border to Mexico.

IT’S A COMPLICATED WORLD

Fast forward 20 years, and NAFTA is a hot-button issue again. Donald Trump has said he is working on “renegotiating” the agreement, and many Americans are sympathetic to this course of action.

However, coming to a decisive viewpoint on NAFTA’s success or failure can be difficult to achieve. Over two decades, the economic and political landscape has changed. China has risen and created a surplus of cheap labor, technology has changed massively, and central banks have kept the spigots on with QE and ultra-low interest rates. Deciphering what results have been the direct cause of NAFTA – and what is simply the result of a fast-changing world – is not quite straightforward.

In today’s chart, we break down a variety of metrics on the U.S., Canada, and Mexico to give a “before” and “after” story. The result is a mixed bag, but it will at least paint a picture of how the nations have fared comparatively since the agreement came into effect in 1994.

NAFTA: A MIXED TRACK RECORD

On the plus side, NAFTA created the world’s largest free trade area of 450 million people, where trade between the three members quadrupled from $297 billion to $1.14 trillion during the period of 1993-2015.

Further, the agreement likely had the effect of lowering prices for consumers, especially for food, automobiles, clothing, and electronics. It also reduced U.S. reliance on oil from OPEC. In 1994, the United States got 59% of its oil imports from OPEC, but that number is reduced to 44% today as trade with Canada has ramped up. Canada is now the #1 source of foreign oil in the United States.

NAFTA has also unequivocally led to the movement of auto jobs. While the amount of autos manufactured in North America has increased from 12.5 million (1990) to 18.1 million (2016), the share of that production has shifted.

Mexico now produces 20% of all vehicles in North America – and U.S./Canadian shares have shifted down accordingly over the years. The ultimate result is the destruction of hundreds of thousands of jobs in both Michigan and Ontario, Canada.

As a final note, we also looked at comparing macroeconomic indicators from 1980-1993 (“Pre-NAFTA”) with those from 1994-2016 (“Post-NAFTA”).

For the U.S. in particular, here’s what has changed:

This is not intended to be a comprehensive analysis, but it gives a snapshot of what has changed since NAFTA was ratified.

Trump to Renegotiate NAFTA with Mexico and Canada

The days of the American homeowner competing against the Mexican guy living in a cardboard shack made from garbage is coming to an end -- God willing. While no one deserves to live in cardboard shacks made from garbage, it is not the burden of the American people to uplift the lifestyles of the Mexican people. If Mexico is unable to do that, they should permit our armies to take control of their cities and properly build their economies the way Alexander Hamilton intended.
 
source: Reuters/Bloomberg

U.S. President Donald Trump said on Sunday he plans talks soon with the leaders of Canada and Mexico to begin renegotiating the North American Free Trade Agreement.
 
"We will be starting negotiations having to do with NAFTA," Trump said at a swearing-in ceremony for his top White House advisers. "We are going to start renegotiating on NAFTA, on immigration and on security at the border."
 
Trump pledged during his presidential campaign that if elected he would renegotiate the NAFTA trade pact to provide more favorable terms to the United States.
 
NAFTA, which took effect in 1994, and other trade deals became lightning rods for voter anger in the U.S. industrial heartland states that swept Trump to power this month.
 
Trump has said little about what improvements he wants, apart from halting the migration of U.S. factories and jobs to Mexico.
Since winning the Nov. 8 election, Trump has singled out and threatened to impose tariffs on U.S. companies that move any production to Mexico.
 
He has also intends to build a wall along the U.S. southern border to deter illegal immigration and insisted that Mexico will pay for it.
 
“We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength,” Trump said in Friday’s inaugural address.

 
This, of course, is bound to have massive ramifications on U.S. equity markets -- which have done nothing but ignore Trump and the seriousness of his massive policy changes. For those of you who are too young to remember, there was once a man named Ross Perot (Presidential run 1992) who warned us about NAFTA and how it wreak havoc across the American industrial landscape.
 

 
Here is an article published by the NY Times in 2003, after 10 years of NAFTA.
 

The pain, he said, is concentrated in places like the Midwest, where manufacturing jobs have been lost to Mexico and Canada, and now to China. ""Nafta-related job loss and lower income may be small, but the echo is very large because of all the other jobs lost to globalization,"" he said. ""Nafta is the symbol for all of that pain.""
 
""It has definitely created export-related job growth,"" said Bill Richardson, the governor of New Mexico. As the Democratic whip, he helped pushed through passage of Nafta in the House.
 
""On the whole Nafta"s been a plus, but still, with a lot of alarmingly bad follow-up on commitments made on the border,"" he said. Promises to protect workers" rights and the environment have ""failed alarmingly."" So have pledges to close the economic gap between the United States and Mexico.
 
""The whole idea that Nafta would create jobs on the Mexican side and thus deter immigration has just been dead wrong,"" he said. ""That was oversold.""
 
""We"re the losers,"" said Bonnie Long, one of at least half a million American manufacturing workers who lost their jobs due to Nafta, despite the surge in trade. ""We lost our health care, our living wages. The winners are the corporate executives who don"t even live here and can locate their factories wherever they find the cheapest labor.""
 
Chester F. Dobis, speaker pro tem of the Indiana House of Representatives, held four meetings this year around the state to gauge feelings toward free trade. Mr. Dobis, a Democrat from Merrillville, said he had thought the only problems would be in his own district, a steel-producing region.
 
""Boy, was I wrong,"" he said. ""These trade pacts have had a devastating effect on every part of the state. The companies deserted Indiana for Mexico a couple of years ago and now they"re heading for China.""
 
The warning signs were there and evident. Our politicians knew, but did not care enough to do anything about it.

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