Trade between the U.S., Canada, and Mexico supports over three million American jobs. NAFTA has opened up big opportunities for Americans by backing U.S.-made exports and jobs.
Canada and Mexico are America’s top two export markets. They buy more U.S.-made goods and services than any other country. Since NAFTA began, states like Illinois, Ohio, Michigan, and many others have seen big increases in exports to Canada and Mexico.
Background
The North American Free Trade Agreement (NAFTA) was modeled after the success of the European Economic Community (1957–93), which boosted trade among its members by removing tariffs. Supporters believed that a similar free-trade zone in North America would lead to more trade and higher production, creating millions of good-paying jobs across all member countries.
Before NAFTA, the U.S. and Canada had already signed a free-trade deal in 1988. NAFTA built on that agreement by including Mexico. U.S. President George H.W. Bush, Canadian Prime Minister Brian Mulroney, and Mexican President Carlos Salinas de Gortari negotiated the agreement. They reached a preliminary deal in August 1992 and officially signed it on December 17 of that year. After being approved by all three national legislatures in 1993, NAFTA took effect on January 1, 1994.
What Was NAFTA Designed to Do?
The goal of NAFTA was to build a free trade area between the U.S., Mexico, and Canada. It aimed to cut costs for businesses working across borders and make it easier to trade by reducing regulations and paperwork.
How NAFTA Operated
NAFTA eliminated tariffs and other trade barriers on goods and services traded between the U.S., Canada, and Mexico. It also removed limits on investments and added protections for intellectual property. Separate agreements focused on improving labor and environmental standards across all three countries.
Some Facts on the NAFTA and…
NAFTA and American Jobs
In more than 30 U.S. states, either Canada or Mexico is the number one or two export markets. Many small U.S. businesses find their first international customers in Canada or Mexico. Thanks to NAFTA, over 140,000 small and mid-sized U.S. businesses have been able to grow through trade with these two countries.
NAFTA and Manufacturing
Since NAFTA started, U.S. manufacturing exports to Canada and Mexico have jumped 258%. The U.S. also has a growing trade surplus in manufacturing with its NAFTA partners. Exports of American-made electronics, furniture, paper goods, and metal products have all more than tripled under NAFTA.
NAFTA and the Trans-Pacific Partnership
The Trans-Pacific Partnership (TPP) helps update NAFTA for today’s global economy and supports American workers and families. Building on the trade progress made since NAFTA, the TPP addresses issues like illegal fishing and wildlife trafficking, tackles the rise of the digital economy, and promotes strong labor and environmental protections to keep trade fair for U.S. workers.
NAFTA and the Trade Balance
In many areas, like services and some goods, the U.S. has a trade surplus with Canada and Mexico. The main reason for any trade gap is fossil fuel imports. Without those, the U.S. actually has a large and growing trade surplus in things like agriculture, manufactured products, and services.
Imports from Canada and Mexico also help American businesses stay competitive. Around 60% of all goods the U.S. imports from its NAFTA partners are used to produce American-made products and services.
Advantages and Disadvantages of NAFTA
NAFTA was created to boost trade across North America. By reducing or eliminating tariffs, it succeeded in increasing trade and investment between the U.S., Canada, and Mexico. It was especially helpful for small and medium-sized businesses by cutting costs and eliminating the need to open a physical office in another country to do business there.
Increased Trade
Most of the trade growth happened between the U.S. and Mexico or the U.S. and Canada, though trade between Mexico and Canada also went up. Trilateral trade reached the $1 trillion mark by 2011, up from 1993. Real per-person GDP grew modestly in all three nations, with the biggest gains in Canada and the U.S. However, during the years NAFTA was in place, the U.S. trade deficit (when imports are greater than exports) grew, especially with Mexico.
Intellectual Property Protections
NAFTA also covered non-physical assets like intellectual property. It set up systems to resolve trade disputes and included rules to protect workers and the environment through the NAAEC and NAALC. It helped make U.S. companies more competitive abroad and brought U.S. workplace safety and health standards to other countries.
Job Loss and Immigration
NAFTA was criticized by those who said it led to U.S. jobs moving to Mexico, even with the labor protections in the NAALC. Many manufacturers, like car companies and clothing businesses, moved operations to Mexico or other countries with lower wages. Still, not all of these shifts were directly caused by NAFTA.
Pros
Cons
Growth in cross-border trade and investment
Job losses in U.S. manufacturing sectors
Boosted U.S. industry competitiveness
Rising inflation in the U.S.
More opportunities for small businesses
Larger U.S. trade deficits
Improved health, safety, and environmental standards
Widened wage gap between the U.S. and Mexico
Is NAFTA Still Active?
No. NAFTA was officially replaced by the United States-Mexico-Canada Agreement (USMCA). That deal was signed on November 30, 2018, and took effect on July 1, 2020.
2025 Trade Policy Update
After returning to office on January 20, 2025, President Trump ordered a review of U.S. trade agreements. He stated that Canada and Mexico might face 25% tariffs starting February 1.
Did the U.S. Benefit from NAFTA?
There’s ongoing debate about NAFTA’s impact on the U.S. economy. Trade between the U.S., Canada, and Mexico more than tripled, jumping from around $290 billion in 1993 to over $1 trillion by 2011. Investments between the countries also increased, and U.S. GDP grew modestly. Still, many experts say it’s hard to separate NAFTA’s effects from other major changes, such as advances in technology and trade with countries like China. Some industries in the U.S. lost jobs, and wages stayed mostly flat, which has kept the debate alive.
What Did Canada Gain from NAFTA?
After NAFTA was fully implemented, investments from the U.S. and Mexico into Canada tripled. American investment alone rose from $70 billion in 1993 to over $368 billion by 2013.
Final Thoughts
NAFTA brought both major gains and serious drawbacks. While all three member countries saw growth in trade, stronger economies, and some wage increases, experts still question how much of that progress was directly tied to the agreement.
It’s also hard to assess NAFTA’s impact without considering other major events and trends over the last 25 years, like the Great Recession and rapid changes in technology and industry. NAFTA didn’t affect the U.S., Canada, and Mexico equally, and its effects were felt differently in each country.
Mary Watson
