Financial Institutions: NAFTA and USMCA

What does NAFTA stand for?

North American Free Trade Agreement

Which countries were involved in NAFTA?

Canada, Mexico, and the United States

When did NAFTA enter into force?

January 1994

What was the primary purpose of NAFTA?

To eliminate most tariffs on goods traded between the three countries and promote economic integration.

What additional provisions did NAFTA include beyond tariff cuts?

Intellectual property protections, dispute settlement mechanisms, and side agreements on labor and environment.

What was Mexico's goal in joining NAFTA?

To integrate more closely with the U.S. and Canada, bring economic growth, job creation, and reduce migration pressures.

What was the U.S. and Canada's perspective on Mexico's inclusion in NAFTA?

They viewed Mexico as a growth market and a lower-cost production base to enhance their companies' competitiveness.

What was the previous trade agreement between the U.S. and Canada before NAFTA?

CUSFTA (Canada-U.S. Free Trade Agreement) established in 1988.

What concerns did critics in the U.S. raise about NAFTA?

Concerns about wage differentials and potential job flight due to Mexico's lower per capita income.

What was the outcome of the vote in the U.S. Congress for NAFTA?

NAFTA passed by a narrow margin, 234 to 200 in the House.

What is the updated agreement that replaced NAFTA?

USMCA (United States-Mexico-Canada Agreement)

When did USMCA enter into force?

July 1, 2020

What improvements did USMCA include compared to NAFTA?

Stronger enforcement mechanisms, especially around labor provisions.

How much did trade among NAFTA countries grow from 1993 to 2016?

From about US$290 billion to over US$1.1 trillion.

What percentage of U.S. exports were accounted for by Canada and Mexico post-NAFTA?

More than one-third of U.S. exports.

How did U.S. Foreign Direct Investment (FDI) in Mexico change after NAFTA?

It rose from about US$15 billion to over US$100 billion by 2016.

What was the estimated boost to U.S. GDP from NAFTA?

Less than 0.5%, corresponding to around US$80 billion in added output.

What happened to Canadian exports to the U.S. after NAFTA?

Canadian exports to the U.S. rose from ~$110 billion to ~$346 billion.

What was one significant change in Mexico's auto manufacturing employment during NAFTA?

It rose from ~120,000 to ~550,000.

What criticisms were made regarding job losses due to NAFTA?

Critics claimed it caused losses in manufacturing jobs, particularly in sectors exposed to import competition.

What were some of the labor and environmental provisions in NAFTA?

They were relatively weak, with minimal enforcement and no punitive tariffs for violations.

How did President Trump characterize NAFTA during his presidency?

He labeled it as 'the worst trade deal ever made.'

What was a notable political reaction to NAFTA's renegotiation?

The renegotiated USMCA passed with broad bipartisan support in the U.S. Congress.

What was the primary purpose of NAFTA?

To eliminate most tariffs on products traded between Canada, Mexico, and the United States, and to liberalize trade in agriculture, textiles, and automobile manufacturing.

What was one of the criticisms of NAFTA regarding U.S. jobs?

Critics, including President Donald J. Trump, argued that it undermined U.S. jobs and manufacturing.

What was the expected benefit of NAFTA for Mexico?

To provide new jobs and opportunities for its growing workforce and discourage illegal migration.

What did opponents of NAFTA argue regarding wage differentials?

They argued that trade liberalization would lead to a 'giant sucking sound' of U.S. jobs fleeing to Mexico.

What was the impact of NAFTA on U.S. jobs related to trade?

Supporters estimate that about fourteen million U.S. jobs rely on trade with Canada or Mexico.

What was a significant change in labor provisions with the USMCA compared to NAFTA?

The USMCA achieved stronger enforcement mechanisms for labor provisions.

What was the effect of NAFTA on cross-border investment?

U.S. foreign direct investment (FDI) stock in Mexico increased from $15 billion to more than $100 billion from 1993 to 2016.

What was one of the long-term effects of NAFTA on trade patterns?

Trade between the United States and its North American neighbors grew more rapidly than U.S. trade with the rest of the world.

What did NAFTA pioneer in terms of trade agreements?

It pioneered the incorporation of labor and environmental provisions in free trade agreements.

What were some industries that faced disruptions due to NAFTA?

Some workers and industries, particularly in auto manufacturing, faced painful disruptions due to increased competition.

What was the general consensus among economists regarding NAFTA's economic impact?

Economists largely agree that NAFTA benefited North America's economies, with significant increases in regional trade.

What was a unique aspect of NAFTA compared to previous trade agreements?

It included a less-developed country, Mexico, alongside the developed economies of Canada and the United States.

What was one of the goals of the U.S. and Canada in integrating Mexico through NAFTA?

To enhance the competitiveness of U.S. and Canadian companies by providing a lower-cost investment location in Mexico.

How many jobs did the U.S. auto sector lose since NAFTA was implemented?

Approximately 350,000 jobs, which is a third of the industry.

How did NAFTA help the U.S. auto sector compete with China?

By contributing to the development of cross-border supply chains, lowering costs, and increasing productivity.

What was one of the economic impacts of NAFTA on Mexican agriculture?

Boosted Mexican farm exports to the U.S., which tripled since NAFTA's implementation.

What issue did Mexican farmers face due to NAFTA?

Competition from heavily subsidized U.S. agriculture, leading to unemployment among small-scale farmers.

What was the impact of NAFTA on illegal migration to the U.S.?

Migration more than doubled after 1994, peaking in 2007.

What does the 'two-speed' nature of Mexico's economy refer to?

The growth of foreign investment and high-tech manufacturing in the industrial north contrasted with stagnation in the agrarian south.

How did NAFTA affect income inequality in Mexico?

It contributed to rising inequality, with northern workers gaining higher wages from trade-related activities.

What was one consequence of the 2008 financial crisis on Mexican exports?

Mexican exports to the U.S. fell by 17 percent, and the economy contracted by over 6 percent.

What were the expectations of NAFTA supporters regarding its impact on wages and growth in Mexico?

Rapid growth, raised wages, and reduced emigration, which did not materialize as expected.

What was the main argument of economists who supported NAFTA?

That increased trade produces overall gains for the U.S. economy, despite some job losses.

What event in 1994 significantly impacted the Mexican economy?

The devaluation of the peso drove Mexican exports.

What factor likely depressed growth in Mexico's economy?

Competition with China's low-cost manufacturing sector.

What public policy made it easier for Mexican farmers to sell land and emigrate?

Land reform.

How much did U.S. and Mexican investments in Canada increase since 1993?

Investments tripled.

What trade agreement preceded NAFTA and opened Canada's economy to the U.S.?

Canada-U.S. Free Trade Agreement (CUSFTA).

What sector saw a significant boost in trade due to NAFTA?

Agriculture.

What percentage of Canada's exports rely on trade with the United States?

75 percent.

What was a major concern of Canada's trade opponents regarding NAFTA?

That it would gut the country's manufacturing sector.

What did President Trump threaten during USMCA negotiations?

New tariffs on Canadian auto parts.

What was the Trans-Pacific Partnership (TPP)?

A massive trade deal with eleven other countries including Canada and Mexico.

What did Trump demand during the renegotiation of NAFTA?

More access to Canada's dairy market and better labor protections.

What was eliminated in the USMCA regarding dispute resolution?

The investor-state dispute settlement mechanism was eliminated entirely with Canada.

What was the time frame for the USMCA agreement's review?

A sixteen-year time frame with a review after six years.