Free Trade Agreements and NAFTA: Benefits and Drawbacks

The Case for Free Trade Agreements

The conservative Heritage Foundation takes the position that free trade allows American workers to "specialize in goods and services that they produce more efficiently" than anywhere else in the world; those goods can then be exchanged for services and goods "that other countries produce at higher quality and lower cost" (Eiras, 2004). This policy helps America become more "competitive and innovative," Eiras writes, and by being innovative, America produces new technologies that offer opportunities to generate even more goods and services (p. 1). The benefits for America from free trade agreements include: a) the chance to cure more diseases; b) improved educational facilities and institutions; c) less pollution; and d) greater economic growth and a wider "range of investment opportunities" (Eiras, p. 1).

When strong economic growth results from free trade arrangements, another outcome is better jobs that pay more and "higher standards of living," Eiras explains. Moreover, new technologies bring changes that serve citizens well. The Heritage Foundation presents two primary reasons in support of this view. First, Americans enjoy a higher standard of living under free trade agreements. When there are no trade barriers, companies that produce goods are apt to face "greater competition from foreign producers," and this situation stimulates American producers to "improve the quality of their production" while keeping their prices reasonable in order to compete globally (Eiras, p. 2).

Competition, Innovation, and Consumer Benefits

Free trade also gives American producers access to the world market to find "the least expensive parts" they need to manufacture their products. The result of this access to lower input costs is that consumers pay less than they would if no free trade agreements were in place (Eiras, p. 2). Since innovation allows progress to take place and competition is "the best incentive to innovate," the need to remain competitive through innovation — and to produce products at a lower price — is another compelling reason why free trade is a sound policy (Eiras, p. 3).

A good example of how free trade and competition benefit consumers is the personal computer industry. In the 1980s, personal computers were expensive and few Americans owned one, Eiras explains (p. 3). Due to competition among companies such as IBM, Apple, and HP, prices fell dramatically, and by 2002 over 65% of American adults owned a personal computer. Today, smartphones function as computers, cameras, and video tools, and competition among several technology companies has similarly driven prices down significantly.

NAFTA as the Primary U.S. Economic Bloc

NAFTA, the North American Free Trade Agreement, is currently the largest economic bloc for the United States. It links Canada, Mexico, and the United States. While the U.S. has hoped to extend the bloc into Latin America and has conducted negotiations with Chile toward that end, no additional countries are currently included in NAFTA.

Meanwhile, the U.S. and the European Union (EU) have been in talks to create what some describe as "the world's biggest free trade area." According to Bruno Waterfield, writing in the Daily Telegraph, the creation of this trading bloc could be a "game changer" capable of helping to revive the struggling economies of several European nations (Waterfield, 2013). That potential bloc between the U.S. and the EU could generate up to $75 billion within two years for both trading partners (Waterfield, p. 1).

Advantages Realized from NAFTA

From 1993 to 2003, the United States experienced 38% economic growth under NAFTA; Canada recorded 30.9% growth and Mexico reported 30% growth during the same first decade of the agreement (Office of the United States Trade Representative). Several concrete advantages have been realized through NAFTA. The elimination of tariffs has helped reduce inflation by lowering the cost of imports, and small businesses have benefited from the reduced cost of trade (Amadeo, 2013). From 1993 to 2009, trade among Mexico, Canada, and the United States increased from $142 billion to $1.6 trillion (Amadeo, p. 1). Agricultural exports from the U.S. farming community to Canada and Mexico also rose, from 22% of total U.S. farm exports in 1993 to 30% by 2007 (Amadeo, p. 1).

NAFTA also created a surplus in financial services and healthcare. U.S. service exports to Mexico and Canada grew from $25 billion in 1993 to $106.8 billion in 2007, while imports of those services into the United States totaled only $35 billion, resulting in a substantial surplus (Amadeo, pp. 1–2). Additionally, America imported $116.2 billion worth of oil products from Mexico and Canada, mostly in the form of shale oil, which has helped reduce U.S. dependence on oil from the Middle East and Venezuela (Amadeo, p. 2).