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Examining NAFTA's impact nearly 20 years later

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13 Nov 2013

Since the North American Free Trade Agreement (NAFTA) was put into effect in 1994, Canada, the U.S. and Mexico have become increasingly linked. A new study by researchers from the Brookings Institution's Metropolitan Policy Program examined the roadmap networks between North American cities, and found manufacturing supply chains connect local communities in North America through trade. With more Canadian and U.S. businesses choosing to offshore manufacturing to Mexico, the interplay between the three countries may only increase in coming years. In fact, Brookings released the study in advance of the Global Cities Initiative's upcoming forum in Mexico City and in preparation for NAFTA's anniversary next year.

NAFTA drives connections
The study "Metro North America: Cities and Metros as Hubs of Advanced Industries and Integrated Good Trade" examined the trading relationships and manufacturing supply chains between 33 metropolitan areas in Canada, 100 of the largest U.S. cities and 59 metropolitan areas in Mexico. The report included nonfinished goods as well as finished products, as manufacturing different automobile parts, electronics and appliances now occur in various areas of North America. According to the study, the movement toward low cost manufacturing resulted in North American companies expanding their production processes across the continent, which is causing an interplay in supply chains and trade between Canada, the U.S. and Mexico.

Manufacturing is an integral part of NAFTA's success and Canada, the U.S. and Mexico's individual economies. In 2010, U.S. metropolitan areas alone traded $512 billion in products with cities in Canada and Mexico. Aerospace, electronics and automotive accounted for 47 percent of North American trade, according to the report. 

"In both quantity and quality, North American trade is unique," Joseph Parilla, co-author of the report and research analyst at the Brookings Institute, said. "The U.S. trades as much with its North American neighbors as it does with Japan, Korea, and the BRICS - Brazil, Russia, India, China, and South Africa - combined. And at least a quarter of what we import from Mexico and Canada is actually American-made content; for China, that number is four percent."

Offshoring generates success
With manufacturing constantly evolving, NAFTA may encourage more Canadian and U.S. manufacturers to move their production processes to Mexico. Previous research has already indicated jobs are popping up wherever manufacturers decide to place themselves, according to a blog on The Seattle Times. North America is becoming increasingly integrated thanks to NAFTA, and this is encouraging the three countries to co-produce products for maximum cost efficiency and to ensure goods are of the highest quality.

Manufacturers may not be able to find experienced workers at the costs they need in their local communities. Being able to invest in producing goods in the perfect industrial cluster is one of the benefits NAFTA offers manufacturers, and, according to the Brookings study, this has allowed strong trading relationships between North America's biggest cities. Offshoring manufacturing may only increase trade between North American countries. 

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