What is the impact of NAFTA on the U.S.?
For the United States, NAFTA is essentially a foreign-policy issue rather than an economic issue. Mexico’s government needs NAFTA, and the United States has a strong interest in helping that government. The economic impact for the United States is minimal. Essentially all we are doing is lowering tariffs which are already low (from 4% on average to 0%) to imports from a country which is one-twentieth the size of the U.S. economy. Consequently NAFTA will only produce a small gain in overall U.S. real income, perhaps a little over 0.1% of U.S. GDP. Mexico will benefit much more and can expect GDP to be about 4% higher than it otherwise would be. However, economic thoery suggests that there should be a slight fall in the real wages of unskilled U.S. workers. To this date there is no empirical evidence demonstrating this decline, but our best guess has to be that there will be a small negative effect. NAFTA will have no effect on the number of jobs in the United States. The number of jobs
