Reshaping NAFTA could be good for Mexico’s economy

4/18/2017 United Press International

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Flickr/Douglas Sprott

Among other threats targeting Mexico during his election campaign, U.S. President Donald Trump harshly criticized the North American Free Trade Agreement, a 23-year-old tripartite deal that removed tariffs and significantly increased commerce between Canada, the United States and Mexico.

Renegotiation of the deal is likely to start late this year.

As Trump has pointed out, NAFTA contributed to a U.S. trade deficit with Mexico reaching $63.2 billion last year. This is the country’s fourth-largest trade deficit, after China, Japan and Germany. America’s deficit with the other NAFTA nation, Canada, was slightly over $11 billion in 2016.

But that’s only part of the story. Remove cars and auto part imports, for example, and the U.S. deficit with Mexico virtually disappears.

Overall, NAFTA has been beneficial to Mexico, Canada and the United States alike. Since it was signed in 1994, foreign direct investments in Mexico have averaged 2.6 percent of GDP (compared to 1 percent for two decades before NAFTA). At present, annual bilateral trade between the United States and Mexico is running at $580 billion.

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