The North American Free Trade Agreement (NAFTA) is a trade agreement between the United States, Mexico, and Canada. It was signed on December 17, 1992, by then-President George H.W. Bush and officially entered into force on January 1, 1994, establishing what is considered to be the world’s largest free trade area.

The fundamental purpose of NAFTA was to remove or reduce numerous tariff and non-tariff barriers to trade among the three countries, raising the level of economic integration between the nations. Under NAFTA, most tariffs on imports and exports from the countries were eliminated or substantially reduced. It also encouraged foreign direct investment and established rules governing trade in services and investment.

The NAFTA agreement did not deal with issues such as environmental protection, labor rights, and other issues of social-minded public policy. Thus, two side agreements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC) were implemented. The agreements were designed to ensure that North American countries adhere to the same standards on labor and environmental protection in order to discourage businesses from relocating to areas with poorer environmental and labor standards.

NAFTA has had generally positive effects on the U. S. economy, including increases in trade flows, investments, technological improvements, and new job opportunities. U. S. exports to Mexico and Canada rose from $142 billion in 1993 to $557 billion in 2017. NAFTA also drastically increased foreign direct investment (FDI) inflows into the US, with U.S. FDI stocks in Canada and Mexico increasing from $38 billion in 1993 to about $488 billion in 2017.

On the other hand, some economic sectors in the U.S. were negatively impacted by NAFTA. For instance, the auto industry was hit hard as manufacturers moved production to Mexico to take advantage of lower-cost labor and production, leading to a significant loss of jobs in the Midwest. Furthermore, critics of NAFTA point out that the U.S. trade deficit with Canada and Mexico has more than doubled since NAFTA went into force, rising from $17 billion in 1993 to $86 billion in 2017.

After several years of negotiations, the United States-Mexico-Canada Agreement (USMCA) was signed on November 30, 2018 and went into full force on July 1, 2020. The new trade deal updates key areas of the existing North American trade pact, addressing labor, environmental and intellectual property protections, and digital commerce, among other matters. It contains provisions that directly address labor and environmental standards, particularly in the auto sector, and increased rules of origin for automobiles, digital trade, and biotechnological products.

In conclusion, the North American Free Trade Agreement (NAFTA) was a groundbreaking trade agreement between the United States, Mexico, and Canada that was implemented in 1994. It had a significant economic impact on the three countries, in terms of trade flows, investments, technology, and job opportunities, but also had some negative aspects such as job losses due to outsourcing. The new USMCA, signed in 2018, looks to build upon the progress made by NAFTA and further advance North American trade.