NAFTA, 20 Years and Not There Yet Harold L. Sirkin - Bloomberg News
go to original August 2, 2012

The North American Free Trade Agreement (NAFTA) is nearly two decades old and it’s unclear to many whether the United States has been a net beneficiary - or a net loser - from the deal.

The U.S., Canadian and Mexican economies have all benefited from NAFTA. But not as much as they should have, because - even after 20 years - the three countries still haven’t properly integrated their economies, which makes them competitive in many areas where they should be cooperative.

The United States, Canada and Mexico have unique strengths that perfectly complement each other. Canada has abundant natural resources and energy supplies. Mexico has a significant and comparatively young low-cost labor force in close proximity to the United States. And the United States has one of the top higher-education systems in the world, and is the global leader in technology and innovation. For our economies to benefit fully from NAFTA, these strengths need to be integrated.

There have, of course, been some very positive benefits. From 1993 to 2007, for example, trade among the NAFTA nations more than tripled, from $297 billion to $930 billion, according to the Office of the United States Trade Representative (PDF). In 2010 alone, some 61% of the more than $301.5 billion in goods that Mexico imported came from the United States. Similarly, more than 50% of Canada’s imports came from the United States.

Still, the critics make a valid point: Some U.S. jobs have migrated to Mexico in the years since NAFTA was passed. But almost all of these jobs would have moved offshore anyway, with or without NAFTA. What the NAFTA experience tells us is that good intentions are not enough. In many respects, NAFTA’s promise remains unfulfilled. And that’s too bad.

Going forward, the United States must provide the leadership needed to integrate the U.S., Canadian and Mexican economies. With the December 1 inauguration of Mexico’s new president, Enrique Pena Nieto, the U.S. will have an ally in any such effort.

Writing in the New York Times in early July, Pena Nieto said that building on NAFTA and “further integrating our economies” will be a priority for his new administration.

Until the economies of the three countries are better integrated, the full benefits of NAFTA will never be realized.  We need to move ahead now.

Sirkin is a Chicago-based senior partner of The Boston Consulting Group (BCG) and co-author, with Arindam K. Bhattacharia and James W. Hemerling, of GLOBALITY: Competing with Everyone from Everywhere for Everything (Business Plus, June, 2008).

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