The Benefits of NAFTA on U.S. Trade

Americans export and import over $3.8 trillion of products a year with their trading partners around the world. The positive economic benefits of trading are well documented in every industry. Consumers have more choices at lower prices while producers are able to specialize on their comparative advantages to make products better and cheaper. Low prices mean low inflation which translates in accommodative monetary policy. With low interest rates, consumers and businesses are able to borrow at lower costs. Overall, open trade promotes economic growth.

 The North American Free Trade Agreement (NAFTA), a trilateral trade bloc, is no exception. U.S. exports to Canada and Mexico accounted for 33% of U.S. total exports (averaging nearly $517 billion a year) while U.S. imports from Canada and Mexico accounted for 27% of U.S. total imports (averaging over $606 billion a year). NAFTA provides American consumers with more choices at lower prices as Americans export and import goods of the same industry. For example, the U.S. motor vehicle industry is among the top five export industries to Canada and Mexico and is also among the top five import industries from Canada and Mexico, accounting for 42% of U.S. total motor vehicle exports and 49% of U.S. total motor vehicle imports, respectively. The motor vehicle part industry and oil and gas industry are examples of producers specializing in their comparative advantages along the supply chain within NAFTA. Americans export auto parts and import auto vehicles from Canada and Mexico (77% of U.S. total exports of auto parts); similarly, Americans import raw oil and gas and export petroleum and coal products to Canada and Mexico (30% of U.S. exports of total petroleum and coal products).

 The trading patterns confirm NAFTA benefits both American consumers and producers. NAFTA is vital to the U.S. economy and American consumers. NAFTA drives U.S. trade and economic growth.

Nam Pham is Managing Partner at ndp | analytics.

3 Reasons 2015 Will Be A Big Year For Global Trade

2015 is shaping up to be a big year for the global economy. The U.S.-led free trade agreements have new life. The U.S. and China reached a monumental agreement on information and communications technology tariffs. And India and the U.S. came to consensus on food stockpiles that helps bring the World Trade Organization’s Trade Facilitation Agreement (TFA) one step closer to reality. The U.S. cannot squander this opportunity.

Photo courtesy of Reuters.
  1. On the U.S. FTAs: The Trans-Pacific Partnership (TTIP) and Trans-Atlantic Trade and Investment Partnership (TTIP) have returned to the conversation among policymakers as something the President and Congress can accomplish during the lame-duck session. The success of these agreements hinges on the President and Congress re-enacting the Trade Promotion Authority to allow negotiated trade deals to be voted on in Congress without having them picked apart. And, as we noted in our previous report, there are substantial benefits to TPP countries due to intellectual property-intensive industries that are vital to prosperity, innovation, and competitiveness of all countries in the TPP. 
  2. On U.S./China ITA: The U.S. and China finally agreed to adopt an updated Information Technology Agreement (ITA) that eliminates tariffs on trade for hundreds of information and communications technology (ITC) products. These tariff eliminations, which stood at a range from 8 percent for medical devices to 30 percent for video game consoles, are massively important for the U.S. economy and consumers. The ITA expansion is estimated to increase U.S. exports by $2.8 billion, advance revenues of U.S. companies by $10 billion, and create 60,000 new jobs. Overall, the agreement stands to increase global GDP $190 billion annually. 
  3. On the WTO’s TFA: The U.S. and India reached an agreement over food stockpiles that pulls the Group of 20 major economies closer to consensus on the Bali Agreement. The agreement would be the biggest trade deal in the WTO since its inception. The TFA will remove delays at border crossing and ports by bringing uniform standards at customs and ports. The WTO estimates TFA will stimulate the global economy by $1 trillion. 

The opening of global markets beyond the incremental steps taken over the past few years is a great thing for a sputtering global economy. Businesses benefit by having access to many more customers. Consumers gain access to goods and products are lower prices and a greater variety. Washington has a grand opportunity to lead on global trade. It better not spoil it.