Ten years ago this past December, leaders of the United States, Canada, and Mexico signed the historic North American Free Trade Agreement. Although NAFTA remains a lighting rod for critics of free trade, by any measure it has been a public policy success.

As a trade agreement, it delivered its principal objective of more trade. Since 1993, the value of two-way U.S. trade with Mexico has tripled, from $81 billion to $232 billion, growing twice as fast as U.S. trade with the rest of the world. Canada and Mexico are now America's number one and two trading partners, respectively, with Japan a distant third.

Trade is not about more jobs or fewer jobs but about better jobs, and NAFTA is no exception. Of course, competition from Mexico closed some U.S. factories, but those closures have allowed resources to shift to sectors where American producers enjoy a greater advantage in efficiency. That's the whole idea of trade: we increase production in sectors and industries where we can produce more efficiently and reduce production in sectors where we are less efficient. The result is a shift to better paying jobs. Meanwhile, the overall level of employment is determined by such macroeconomic factors such as monetary policy, labor-market regulations, and the business cycle.

Nowhere were the predictions about NAFTA more apocalyptic than in regard to manufacturing. H. Ross Perot accused NAFTA of "deindustrializing our country," and Rep. David Bonior, the soon to be ex-congressman and Democratic Whip from Michigan, predicted flatly that NAFTA "will destroy the auto industry."

In the eight years since the implementation of NAFTA, those predictions have become laughable. Between 1993 and 2001, manufacturing output in the United States, as measured by the U.S. Federal Reserve Board, rose by one-third. Output of motor vehicles and parts rose by 30 percent. In fact, in the eight years of NAFTA, manufacturing output in the United States rose at an annual average rate of 3.7 percent, 50 percent faster than during the eight years before enactment of NAFTA. Of course, this is not an argument that NAFTA was the primary cause of the acceleration in manufacturing output, but it does knock the wind out of the myth that NAFTA has somehow caused the "deindustrialization" of America.

Manufacturing employment has fallen in the past few years, but that cannot in any plausible way be blamed on NAFTA. In fact, the number of Americans employed in manufacturing grew by 706,000 in the first four years of NAFTA, from January 1994 to January 1998. The decline in manufacturing jobs since 1998 has not occurred because those jobs have gone to Mexico; it has occurred because of 1) collapsing demand for our exports due to the East Asian financial meltdown in 1997-98, 2) our own domestic slowdown in demand due to the 2001 recession, and 3) the ongoing dramatic improvement in manufacturing productivity-fueled by information technology and increased global competition-that has allowed American factories to produce more and better widgets with fewer workers.

By every reasonable measure, NAFTA has been a public policy success in the decade since it was signed. It has deepened and institutionalized Mexico's drive to modernize and liberalize its economy and political system. It has spurred trade, investment, and integration between the United States and Mexico. And in a more modest way it has enhanced American productivity and prosperity-refuting the critics who were wrong 10 years ago and are just as wrong today.

Links

• Cato Institute