Learn more about NAFTA and its impact on these three economies since it was enacted in 1994.
The History of NAFTA: The 1980s
President Ronald Reagan proposed a North American common market in his 1980 presidential campaign. Europe’s common market, known as the European Economic Community, had already been initiated with the Treaty of Rome in 1957. Congress passed the Trade and Tariff Act in 1984, which built upon and amended the prior Trade Act of 1974. The act gave enhanced “fast-track” authority to negotiate bilateral free trade agreements, streamlining negotiations. Canadian Prime Minister Brian Mulroney agreed to begin discussions for the Canada-U.S. Free Trade Agreement in 1985. Negotiations began in 1986, and the agreement was signed in 1988. It went into effect on January 1, 1989 and remained in force until NAFTA replaced it.
The History of NAFTA: The 1990s
In June 1990, Mexican President Carlos Salinas de Gortari requested a free trade agreement with the U.S. Reagan’s successor, President George H.W. Bush, began negotiations with President Salinas in September 1990. The goal was a liberalized trade agreement among Mexico, Canada, and the U.S. NAFTA was signed by outgoing President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. The European Union had been created by the Treaty of Maastricht earlier that year. Concerns about the liberalization of labor and environmental regulations led to the adoption of two addendums. NAFTA was ratified by the legislatures of the three countries in 1993. President Bill Clinton signed it into law on December 8, 1993. It took effect on January 1, 1994.
The Purpose of NAFTA
Article 102 of the NAFTA agreement outlines its purpose. There are seven specific goals:
NAFTA Fulfilled Its Purpose
NAFTA fulfilled all seven of its goals, establishing the region’s largest free trade zone in terms of gross domestic product. It also increased foreign investment in the three countries. NAFTA had lowered or eliminated tariffs among the three countries and allowed trade to triple by the time the last of its changes went into effect in 2008. It increased the competitiveness of the three countries in the global marketplace.
NAFTA Debated in 3 Elections
NAFTA was attacked from all sides during the 2008 presidential campaign. Barack Obama blamed it for growing unemployment. He said it helped businesses at the expense of workers in the United States. It also did not provide enough protection against the exploitation of workers and the environment.
The Renegotiation of NAFTA
President Donald Trump responded to critics of NAFTA by initiating renegotiations in 2017. U.S. opponents focused on the first two of NAFTA’s six major problems:
Loss of U.S. jobsSuppression of U.S. wagesWorker exploitation in MaquiladorasMexico’s farmers being put out of businessNot enough environmental protections in MexicoFree U.S. access for Mexican trucks
The United States-Mexico-Canada Agreement (USMCA)
President Trump and Mexico reached a bilateral trade deal to replace NAFTA on Aug. 27, 2018, threatening to leave Canada out. Canada joined on Sept. 30, 2018. An agreement was reached by the three countries on Nov. 30, 2018. The Trump administration wanted to lower the trade deficit between the United States and Mexico. The deal attempted to change NAFTA in six areas, including a rule that auto companies must manufacture at least 75% of a car’s components in the USMCA’s trade zone or be subject to higher tariffs. The USMCA took effect on July 1, 2020 as a renegotiation of NAFTA.
The Bottom Line
In the end, NAFTA created the framework for trading throughout the North American countries. There are both good and bad outcomes from the creation of the free trade agreement, but the increase in trade across borders is indisputable. It can be difficult for older agreements to remain relevant over long periods of time, and NAFTA was eventually renegotiated with the goals of improving the trade agreement, which made way for the USMCA.
