The Truth About NAFTA

BERKELEY – As US President Donald Trump receives bids to build his supposed “beautiful wall” along the border with Mexico, his administration is also poised to build some figurative walls with America’s southern neighbor, by renegotiating the North American Free Trade Agreement. Before US officials move forward, they would do well to recognize some basic facts.

Trump has called NAFTA the “single worst trade deal” ever approved by the United States, claiming that it has led to “terrible losses” of manufacturing production and jobs. But none of this is supported by the evidence. Even NAFTA skeptics have concluded that its negative effects on net US manufacturing employment have been small to non-existent.

Trump may prefer not to focus on facts, but it is useful to begin with a few. Bilateral trade between the US and Mexico amounts to over $500 billion per year. The US is by far Mexico’s largest trading partner in merchandise – about 80% of its goods exports go to the US – while Mexico is America’s third-largest trading partner (after Canada and China).

After NAFTA’s passage in 1994, trade between the US and Mexico grew rapidly. America’s merchandise trade balance with Mexico went from a small surplus to a deficit that peaked in 2007, at $74 billion, and is estimated to have been around $60 billion in 2016. But, even as the US trade deficit with Mexico has grown in nominal terms, it has declined relative to total US trade and as a share of US GDP (from a peak of 1.2% in 1986 to less than 0.2% in 2015).