NAFTA Takes Effect

Setting the scene

The North American Free Trade Agreement (NAFTA) took effect on January 1, 1994, creating a free trade zone between the United States, Canada, and Mexico. Negotiated by President George H.W. Bush and signed by President Bill Clinton in 1993, NAFTA eliminated most tariffs on goods traded between the three countries over 15 years.

What happened

NAFTA created the world's largest free trade area at the time, with 450 million people and $8 trillion in GDP. It was controversial—labor unions argued it would ship jobs to Mexico, environmentalists feared a race to the bottom, and Ross Perot famously warned of a 'giant sucking sound' of jobs leaving. Supporters argued it would increase efficiency and competitiveness.

Why it still matters

NAFTA tripled trade between the three nations to $1.2 trillion by 2016 but also contributed to manufacturing job losses in the U.S. and wage stagnation in Mexico. It was replaced by the USMCA in 2020. NAFTA demonstrated both the benefits and costs of globalization and became a symbol of the economic anxieties that fueled populism in the 2010s.

Background

Factory relocation became a political flashpoint.