NAFTA: Economic Effects on the United States After Five Years

The main economic benefit of the North American Free Trade Agreement (NAFTA) is that, over time, it is expected to increase productivity and incomes in the United States, Mexico and Canada. In the near term, some reallocation of resources occurs within each country, generating gains for some producers and workers and costs for others. Since the Mexican and Canadian economies are small relative to the U.S. economy, both the long-term benefits and short-term adjustment costs of the NAFTA to the United States are expected to be small. The data suggest that NAFTA has had a positive, but small, effect on U.S. trade with Mexico and that U.S. direct investment in Mexico remains very small relative to total U.S. investment abroad. The number of workers displaced by import competition with Canada and Mexico or production shifts to those countries is estimated to be very small compared with total U.S. employment.