Trade Creation.
By and large, however, both the Canada–U.S. FTA and the NAFTA
agreements worked out just about as expected by their supporters.
Industry restructured in the direction of greater export orientation in all
three countries, and trade creation occurred. The flow of trade among the
three countries increased markedly, but especially so between Canada
and the United States. As the theory of trade predicts, specialization
occurred in many areas, resulting in more U.S. imports of some product
lines from Canada and more U.S. exports of other goods to Canada. In
1988, before the Canada–U.S. FTA took effect, Canada exported $85
billion in goods to the United States and imported $74 billion from the
United States. By 2017, the value of Canada–U.S. trade had increased by
five times—Canadian exports of goods to the United States had increased
to $411 billion and imports from the United States had increased to $371
billion. (Note that these figures exclude trade in services; with services
included, the increase in Canada–U.S. trade between 1988 and 2017
would be larger by about $200 billion in each direction.)
Another aspect of the trade created by NAFTA relates to global supply
chains, as we discussed in Chapter 32. As U.S., Mexican, and Canadian
firms specialized in producing the goods in which they had a comparative
advantage, the volume of inter-industry trade also increased. Nowhere
was this more significant than in the auto and auto-parts sectors.
Automobile assembly plants located in any of the three NAFTA countries
now routinely receive parts from suppliers in the other two countries. In
some cases, individual parts will cross the international border several
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