NAFTA—the North American Free Trade Agreement—recently turned five years old.
The big idea behind NAFTA was to create an economic free trade zone in North America among Canada, Mexico and the United States. It's an agreement designed to reduce or eliminate trade barriers, i.e. import taxes, among the three participating countries according to a phase out schedule.
Many of us remember the angst and argument associated with its passage. So how has this breakthrough treaty performed for the three signatories? Like so many politically and economically charged issues, it depends on whom you ask. There are many who continue to echo Ross Perot's now famous "sucking sound" prediction along with other dire warnings of economic disaster. According to the U.S. Labor Department, some 190,000 domestic jobs were lost when U.S. manufacturers moved manufacturing to Mexico. That was early in NAFTA's life.
Over time, things tended to balance out. The Congressional Research Service says that since the NAFTA start-up dust settled, the United States has seen a net gain of 680,000 jobs. Of course, an incredibly good U.S. domestic economy hasn't hurt job creation. It can also be argued that a certain halo effect from NAFTA has helped shield Mexico and Canada from some of the economic problems in Asia and South America. Unemployment in Mexico has fallen from around 8 to 2.6 percent through the fourth quarter of 1998. Canada has seen its unemployment go from 10.4 to 8 percent.
Meanwhile, trade among the partners has mushroomed. Commerce between the United States and Mexico has nearly doubled in NAFTA's five years, making Mexico our second largest export market. It replaced Japan. Canada—our number one export market—has seen trade between itself and its big neighbor to the south grow from $259 to $387 billion.
Is all rosy with NAFTA? No. There have been problems: regional border disputes, bureaucratic snafus, serious concerns about fairness and other growing pains. The fact is NAFTA represents not just a big change in trade policy but an even bigger change in attitude. Globalization is arguably the next big adventure for the world's nations.
Figuring out how to get along economically won't be easy, but I think the efforts should continue. It'll be a bumpy road for sure. To paraphrase Lee Iacocca, we can lead or get out of the way. What we can't do is bury our heads in the sand and hope everything will stay comfortably the same.