In October 2013, trade between NAFTA partners totaled $103.1 billion, up 4.5% from a year earlier, marking the first month in the pact’s history in which trade exceeded $100 billion in a single month.
Twenty years ago, one of the most influential and largest free-trade agreements in history, the North American Free Trade Agreement, entered into effect.
The original purpose of NAFTA was to ensure there were no barriers to doing business between the U.S., Canada and Mexico in order to promote cross-border trading and investing. Heavy tariffs were removed, and protocols were developed and put in place for intellectual property protection.
NAFTA’s principles and purpose are just as critical now as they were at its inception and the agreement has created significant economic opportunities for all three countries.
After 20 years, statistics prove how the U.S., Canada and Mexico have harvested a strong return on their investment in this treaty.
NAFTA generated $19 trillion worth of goods and services just last year. In October 2013, trade between NAFTA partners totaled $103.1 billion, up 4.5% from October 2012, marking the first month in NAFTA’s history in which trade exceeded $100 billion in a single month.
Moreover, imports and exports continue to enhance the countries’ collective financial well-being. The intraregional trade flow exceeded $1.1 trillion in 2011, more than four times the $290 billion in 1993.
The U.S. and Canadian economies were well integrated before NAFTA’s inception. For Mexico, NAFTA helped reverse the negative impact of the country’s currency devaluation and inflationary pressure. It enabled capital to flow into and out of the country. Mexico has experienced a foreign trade increase from 20% to 50% of its gross domestic product, and manufacturing exports have tripled.
And contrary to what some critics predicted when NAFTA was implemented, Mexico’s growth has not been to the detriment of the U.S. or Canada. Mexico has become the U.S.’s largest source of imports. In every Mexican good exported to the U.S., 40% is of American content, compared with 25% of Canadian goods and 4% of Chinese goods.
Together, Mexico and the U.S. have generated more than $500 billion in annual bilateral trade, which totals 14% of U.S. exports. Mexico buys more U.S. goods than all Latin American countries combined, and more than France, Germany, the Netherlands and the U.K. combined.
Exports provide significant job creation in both markets – some estimate upwards of $20 million in the U.S. alone. Export-related jobs in the U.S. pay an average of 15%-20% more than those focused purely on domestic production.
One industry that continues to reap the benefits of NAFTA and the treaty’s success in Mexico specifically is the automotive sector.
Mexico has been experiencing unprecedented growth and is becoming one of the most productive auto-manufacturing markets in the world. NAFTA undoubtedly has allowed the automotive industry to become a catalyst for economic improvement across North America.
Mexico continues its evolution and development as foreign investments pour into the country. As of 2012, Mexico’s automotive industry had a net foreign trade surplus of nearly $33 billion, and its contribution to the country’s overall GDP totaled 4% (compared with a meager 1.3% in 1993). The country also matched the U.S. total in investments from automakers in 2012.
Reports suggest that in 2014 about 20 companies from the automotive sector will establish operations in the Queretaro state of Mexico, making the country the eighth-largest car-making nation – surpassing the U.K., Spain, France, Russia, Italy and Belgium in annual vehicle production.
Detroit-based automakers have been some of the biggest proponents of the agreement. In 2012, for instance,bolstered its presence in Mexico by expanding its vehicle and stamping plant in the northern Mexican city of Hermosillo through a $1.3 billion investment.
My belief is that Mexico has become an essential participant in the North American automotive sector since the inception of NAFTA. Today, it is the fourth-largest exporter of vehicles in the world and the fifth-largest exporter of auto parts.
Exports of Mexican cars have grown 480% since 1993, and imports of North American cars to Mexico has increased 280% – a dynamic win-win.
The automotive industry’s supply chain has successfully intertwined across our North American borders, allowing for synergies and economies of scale. Without NAFTA, Mexico’s positive contributions to the automotive industry, one of the world’s most critical business sectors, never would have reached fruition.
Thanks to NAFTA, we are experiencing job creation, profits and sales across our borders in the auto industry and beyond. It is this mutually beneficial trade agreement that served as a catalyst for making North America a stronger, more powerful group of nations and a dominant player in the automotive industry.
Antonio Madero is the founder, chairman and CEO of SANLUIS, a top-tier automotive supplier with core competencies in rotors and suspension components. He chaired the panel for the Trilateral Commission’s North American Regional Meeting on NAFTA in 2011 and was involved closely in negotiations leading up to NAFTA.