Was NAFTA effective at increasing US trade with its bloc partners

The North American Free Trade Agreement (NAFTA), implemented more than thirty years ago in 1994, eliminated import tariffs and other trade barriers between Canada, Mexico, and the US.

Today we explore two questions central to assessing the effectiveness of that trade agreement for US trade:

1. Did the trade agreement spur trade between the US and the other member nations?
2. In the longer run, did it sustain high levels of trade between the US and the other member nations?

The FRED graph above includes data on US exports to Canada and Mexico and US imports from Canada and Mexico, both as percentage shares of US GDP. It also includes two vertical lines: one in 1994 to indicate the start of NAFTA and one in 1989 to indicate the start of the Canada-US free trade agreement, which preceded Mexico's entry in a free-trade bloc with the US.

We don't see a remarkable effect on US-Canada trade shares from the 1989 agreement. But we do see growth in trade shares between the US and both its trade bloc partners after NAFTA, through 2000.

So, the answer to the first question seems to be yes: At least on the basis of export- and import-to-GDP ratios, NAFTA implementation seems to have spurred US trade growth with its bloc partners.

The answer to the second question is mixed. While US trade shares with both bloc partners grew in the 1990s, the pattern in the 2000s has been different. Trade shares with Canada declined between 2000 and 2023 to such an extent that the 2023 shares are lower than the corresponding 1994 shares. US-Mexico trade shares have grown modestly or declined in recent years, although 2023 US-Mexico trade shares exceed their 1994 levels substantially. So, while US-Mexico trade gains from NAFTA have been sustained (despite the post-Great Recession global trade slowdown), US-Canada trade gains from NAFTA have not been sustained.

FYI: NAFTA was replaced by the US-Mexico-Canada Agreement in 2020.

How this graph was created: Search FRED for and select the annual series of "Gross Domestic Product." From the "Edit Graph" panel, add "U.S. Exports of Goods by F.A.S Basis to Canada"; take the annual frequency aggregated as a sum and apply the formula (b*100)/(a*1000) (to get percentages). For imports, use the same method with "U.S. Imports of Goods by Customs Basis to Canada" and repeat this process for Mexico. For the vertical lines, use the "Add Line" tab again, but this time add two "user-defined" lines with values 0.01 and 2.49 for both 1989-01-01 and 1994-01-01.

Suggested by Hoang Le and Subhayu Bandopadhyay.