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What Is NAFTA? - Definition, Effects & History

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  • 0:00 Definition of NAFTA
  • 0:24 Implications of NAFTA
  • 1:10 Criticisms of NAFTA
  • 2:33 Lesson Summary
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Lesson Transcript
Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

In this lesson, you'll learn about the North American Free Trade Agreement (NAFTA), the current trade agreement between the United States, Canada, and Mexico. After the lesson you can assess your understanding with a short quiz.

Definition of NAFTA

NAFTA stands for North American Free Trade Agreement. Signed in 1994 by President Bill Clinton, NAFTA eliminated all tariffs between the United States and Mexico within 15 years. While Canada and the United States had already been trading under the Canada-United States Free Trade Agreement, NAFTA went even further to eliminate trade barriers between the US and Canada.

Implications of NAFTA

US exports - goods produced in the United States and then sold in other countries - to Mexico and Canada nearly doubled between 1994 and 2010. This not only increased gross domestic product (GDP), which is the amount of wealth produced in a country, in the United States but also made those goods imported to Canada and Mexico from the United States more affordable for Mexican and Canadian consumers.

Canada and Mexico also saw their GDP increase as a result of NAFTA. While NAFTA meant some domestic production in each country would be replaced by imports, it meant the same everywhere. The growth from new markets for each country has been more than the economic cost of lost domestic production in each case.

Criticisms of NAFTA

While NAFTA is seen by most as a good economic decision, there are still those who criticize the decision. One common complaint is that NAFTA created the opportunity for manufacturing organizations to access new markets, both as customers and as labor, but didn't put environmental regulations in place. Unfortunately, some US companies seeking to take advantage of cheaper labor and less stringent environment regulations moved their manufacturing to Mexico, not only costing the US jobs but also creating an environmental problem in Mexico.

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