Industry Trade Effects Related to NAFTA

Publication Date: February 2003

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics; Trade

Type:

Abstract:

The North American Free Trade Agreement (NAFTA), signed by President George Bush on December 17, 1992, has been in effect since January 1994. After eight years of implementation, the full effects of NAFTA on the U.S. economy are still unclear. There are numerous indications that NAFTA has achieved many of the trade and economic benefits that proponents claimed it would bring, although there have been adjustment costs. However, there is not enough evidence to quantify the impacts on specific U.S. industries. Some studies show that the agreement has had an overall positive effect on the U.S. economy, but that some industries have experienced losses. As the United States considers further free trade initiatives with Latin American countries, the effects of NAFTA may provide policymakers some indication of how these initiatives might affect U.S. industries and the overall U.S. economy.

Most of the trade effects related to NAFTA are due to changes in U.S. trade and investment patterns with Mexico. At the time of NAFTA implementation, the U.S.Canada Free Trade Agreement already had been in effect for five years and some industries in the United States and Canada were already highly integrated. Since NAFTA, the automotive, textile, and apparel industries have experienced some of the more significant changes in trade flows, which may also have affected U.S. employment in these industries. U.S. trade with Mexico has increased considerably more than U.S. trade with other countries, and Mexico has become a more significant trading partner with the United States since NAFTA implementation. Consequently, Mexico's share of total U.S. trade has increased while that of other countries has decreased. Some data on U.S. imports suggest that Mexico may be supplying the U.S. market with goods that may have otherwise been supplied by Asian countries.

Not all changes in trade patterns since 1994, however, can be attributed to NAFTA because trade was also affected by other unrelated economic factors such as economic growth in the United States and Mexico, and currency fluctuations. Also, trade-related job gains and losses since NAFTA may have accelerated trends that were ongoing prior to NAFTA and may not be totally attributable to the trade agreement.

To address concerns about worker dislocations related to NAFTA, Congress included two employment adjustment assistance programs in the implementing legislation: the NAFTA Transitional Adjustment Assistance (NAFTA-TAA) Program and the U.S. Community Adjustment and Investment Program (USCAIP). The NAFTA-TAA program is now part of a new consolidated Trade Adjustment Assistance (TAA) program passed under the Trade Act of 2002 (P.L. 107-210). The NAFTA-TAA program provides assistance, such as employment services and training, to workers who have lost their jobs because of increased import competition or by production shifts. The USCAIP provides assistance to communities with significant job losses due to changes in trade patterns with Canada or Mexico. While the programs have been successful in providing assistance to communities who have had significant job losses, the overall effectiveness of the programs has been limited. This report will be updated as events warrant.