The Impact of NAFTA on the
Mary E. Burﬁsher, Sherman Robinson and
he U.S. Congress approved the North American Free Trade Agreement
(NAFTA) after an intense political debate. Opponents voiced a number of
concerns, focusing on the impact of the agreement on U.S. labormarkets.
Often these arguments took on a mercantilist tone, with NAFTA opponents arguing that imports from Mexico—accompanied by surging capital ﬂows to Mexico—
would destroy jobs in the United States. Other concerns were more subtle and
related to the effect trade liberalization in Mexican agriculture would have on labor
market transitions in Mexico and unskilled labor emigration to the UnitedStates.
For example, there was concern that Mexico’s traditional anti-poverty policies for
rural labor, which accounted for approximately 25 percent of the labor force in the
early 1990s, were partially supported by trade restrictions. The anticipated expansion of U.S. grain exports to Mexico under NAFTA raised concerns that Mexico’s
rural labor market would collapse, leading to a surge ofmigration of unskilled
workers to the United States.
On the other side, NAFTA supporters argued that trade liberalization would
create gains from increased trade based on comparative advantage. They pointed
out that cheaper imports from Mexico helped U.S. consumers (in purchases of
ﬁnal goods) and producers (in purchases of intermediate goods). In the long run,
as Mexico’s economy grew anddemanded more goods and services, there would be
an expanding market for U.S. exports. Furthermore, they argued that the agreement would have a relatively small impact on the U.S. economy since Mexico
accounted for a small share of U.S. trade and the U.S. average tariffs against Mexico
y Mary E. Burﬁsher is a Senior Economist, Economic Research Service, U.S. Department of
Agriculture, Washington,D.C. Sherman Robinson is Director, Trade and Macroeconomics
Division, International Food Policy Research Institute (IFPRI), Washington, D.C. Karen
Thierfelder is Associate Professor of Economics, U.S. Naval Academy, Annapolis, Maryland.
Journal of Economic Perspectives
were already low. Like many NAFTA opponents, supporters also often relied on
mercantilist arguments that exportsto Mexico were good for the United States
because they created jobs.
Quantitative economic analysis of the potential effects of NAFTA made a major
contribution to the policy debate. A multitude of models and analyses were carried
out at various levels of aggregation, ranging from industry and sectoral studies done
in a partial equilibrium framework to a number of studies using single andmulti-country computable general equilibrium models. Surveys of the empirical
work include U.S. Department of Labor (1993), Francois and Shiells (1994), Lustig,
Bosworth, and Lawrence (1992), and U.S. International Trade Commission (1992).
These surveys indicated a remarkable degree of consensus across studies that varied
widely in methodology and coverage. The mainstream consensus concluded thatthe effects of NAFTA would be positive but small for the U.S. economy, and positive
and large for Mexico.
In this paper we compare arguments made during the debate to post-NAFTA
data to see whether, in fact, they were borne out by actual events. Our comparison
must be qualiﬁed by the fact that other macroeconomic forces also affect trade,
GDP, and employment. Also, NAFTA has a 15-yearphase-in period, so its full effects
have yet to be realized. To address the ﬁrst point, we review results from controlled
experiments using models that isolate the effects of NAFTA. After discussing
aggregate trade issues, we focus on three sectors that were especially contentious in
the NAFTA debate: agriculture, autos, and textiles. Our analysis provides lessons for
future debates over other...