Markets
Cheat Sheet: NAFTA’s Mixed Track Record Since 1994
NAFTA’s Mixed Track Record
Cheat sheet sums up the results of North American trade since 1994
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
On January 1, 1994, the North American Free Trade Agreement (NAFTA) officially came into effect, virtually eliminating all tariffs and trade restrictions between the United States, Canada, and Mexico.
Bill Clinton, who lobbied extensively to get the deal done, said it would encourage other nations to work towards a broader world-trade pact. “NAFTA means jobs. American jobs, and good-paying American jobs,” said Clinton, as he signed the document, “If I didn’t believe that, I wouldn’t support this agreement.”
Ross Perot had a contrary perspective. Lobbying heavily against the agreement, he noted that if it was ratified, Americans would hear a giant “sucking sound” as jobs went south of the border to Mexico.
It’s a Complicated World
Fast forward 20 years, and NAFTA is a hot-button issue again. Donald Trump has said he is working on “renegotiating” the agreement, and many Americans are sympathetic to this course of action.
However, coming to a decisive viewpoint on NAFTA’s success or failure can be difficult to achieve. Over two decades, the economic and political landscape has changed. China has risen and created a surplus of cheap labor, technology has changed massively, and central banks have kept the spigots on with QE and ultra-low interest rates. Deciphering what results have been the direct cause of NAFTA – and what is simply the result of a fast-changing world – is not quite straightforward.
In today’s chart, we break down a variety of metrics on the U.S., Canada, and Mexico to give a “before” and “after” story. The result is a mixed bag, but it will at least paint a picture of how the nations have fared comparatively since the agreement came into effect in 1994.
NAFTA: A Mixed Track Record
On the plus side, NAFTA created the world’s largest free trade area of 450 million people, where trade between the three members quadrupled from $297 billion to $1.14 trillion during the period of 1993-2015.
Further, the agreement likely had the effect of lowering prices for consumers, especially for food, automobiles, clothing, and electronics. It also reduced U.S. reliance on oil from OPEC. In 1994, the United States got 59% of its oil imports from OPEC, but that number is reduced to 44% today as trade with Canada has ramped up. Canada is now the #1 source of foreign oil in the United States.
NAFTA has also unequivocally led to the movement of auto jobs. While the amount of autos manufactured in North America has increased from 12.5 million (1990) to 18.1 million (2016), the share of that production has shifted.
North American Auto Production by Share
Year | Canada | Mexico | USA | Total Car/Trucks Produced in North America |
---|---|---|---|---|
1990 | 16% | 6% | 78% | 12.5 million |
2007 | 17% | 13% | 70% | 15.4 million |
2016 | 13% | 20% | 67% | 18.1 million |
Mexico now produces 20% of all vehicles in North America – and U.S./Canadian shares have shifted down accordingly over the years. The ultimate result is the destruction of hundreds of thousands of jobs in both Michigan and Ontario, Canada.
As a final note, we also looked at comparing macroeconomic indicators from 1980-1993 (“Pre-NAFTA”) with those from 1994-2016 (“Post-NAFTA”).
For the U.S. in particular, here’s what has changed:
Metric | Pre-NAFTA (1980-1993) | Post-NAFTA (1994-2016) | Change |
---|---|---|---|
Avg. Real GDP Growth | 2.8% | 2.5% | -0.3% |
Avg. Unemployment Rate | 7.1% | 5.9% | -1.2% |
Annual Growth in Exports | 5.7% | 4.9% | -0.9% |
Annual Growth in GDP per Capita (PPP) | 5.9% | 3.3% | -2.6% |
Average Gini Coefficient (Inequality) | 34.2 | 37.4 | 3.2 |
This is not intended to be a comprehensive analysis, but it gives a snapshot of what has changed since NAFTA was ratified.
Markets
The European Stock Market: Attractive Valuations Offer Opportunities
On average, the European stock market has valuations that are nearly 50% lower than U.S. valuations. But how can you access the market?
European Stock Market: Attractive Valuations Offer Opportunities
Europe is known for some established brands, from L’Oréal to Louis Vuitton. However, the European stock market offers additional opportunities that may be lesser known.
The above infographic, sponsored by STOXX, outlines why investors may want to consider European stocks.
Attractive Valuations
Compared to most North American and Asian markets, European stocks offer lower or comparable valuations.
Index | Price-to-Earnings Ratio | Price-to-Book Ratio |
---|---|---|
EURO STOXX 50 | 14.9 | 2.2 |
STOXX Europe 600 | 14.4 | 2 |
U.S. | 25.9 | 4.7 |
Canada | 16.1 | 1.8 |
Japan | 15.4 | 1.6 |
Asia Pacific ex. China | 17.1 | 1.8 |
Data as of February 29, 2024. See graphic for full index names. Ratios based on trailing 12 month financials. The price to earnings ratio excludes companies with negative earnings.
On average, European valuations are nearly 50% lower than U.S. valuations, potentially offering an affordable entry point for investors.
Research also shows that lower price ratios have historically led to higher long-term returns.
Market Movements Not Closely Connected
Over the last decade, the European stock market had low-to-moderate correlation with North American and Asian equities.
The below chart shows correlations from February 2014 to February 2024. A value closer to zero indicates low correlation, while a value of one would indicate that two regions are moving in perfect unison.
EURO STOXX 50 | STOXX EUROPE 600 | U.S. | Canada | Japan | Asia Pacific ex. China |
|
---|---|---|---|---|---|---|
EURO STOXX 50 | 1.00 | 0.97 | 0.55 | 0.67 | 0.24 | 0.43 |
STOXX EUROPE 600 | 1.00 | 0.56 | 0.71 | 0.28 | 0.48 | |
U.S. | 1.00 | 0.73 | 0.12 | 0.25 | ||
Canada | 1.00 | 0.22 | 0.40 | |||
Japan | 1.00 | 0.88 | ||||
Asia Pacific ex. China | 1.00 |
Data is based on daily USD returns.
European equities had relatively independent market movements from North American and Asian markets. One contributing factor could be the differing sector weights in each market. For instance, technology makes up a quarter of the U.S. market, but health care and industrials dominate the broader European market.
Ultimately, European equities can enhance portfolio diversification and have the potential to mitigate risk for investors.
Tracking the Market
For investors interested in European equities, STOXX offers a variety of flagship indices:
Index | Description | Market Cap |
---|---|---|
STOXX Europe 600 | Pan-regional, broad market | €10.5T |
STOXX Developed Europe | Pan-regional, broad-market | €9.9T |
STOXX Europe 600 ESG-X | Pan-regional, broad market, sustainability focus | €9.7T |
STOXX Europe 50 | Pan-regional, blue-chip | €5.1T |
EURO STOXX 50 | Eurozone, blue-chip | €3.5T |
Data is as of February 29, 2024. Market cap is free float, which represents the shares that are readily available for public trading on stock exchanges.
The EURO STOXX 50 tracks the Eurozone’s biggest and most traded companies. It also underlies one of the world’s largest ranges of ETFs and mutual funds. As of November 2023, there were €27.3 billion in ETFs and €23.5B in mutual fund assets under management tracking the index.
“For the past 25 years, the EURO STOXX 50 has served as an accurate, reliable and tradable representation of the Eurozone equity market.”
— Axel Lomholt, General Manager at STOXX
Partnering with STOXX to Track the European Stock Market
Are you interested in European equities? STOXX can be a valuable partner:
- Comprehensive, liquid and investable ecosystem
- European heritage, global reach
- Highly sophisticated customization capabilities
- Open architecture approach to using data
- Close partnerships with clients
- Part of ISS STOXX and Deutsche Börse Group
With a full suite of indices, STOXX can help you benchmark against the European stock market.
Learn how STOXX’s European indices offer liquid and effective market access.
-
Economy3 days ago
Economic Growth Forecasts for G7 and BRICS Countries in 2024
The IMF has released its economic growth forecasts for 2024. How do the G7 and BRICS countries compare?
-
Markets2 weeks ago
U.S. Debt Interest Payments Reach $1 Trillion
U.S. debt interest payments have surged past the $1 trillion dollar mark, amid high interest rates and an ever-expanding debt burden.
-
United States2 weeks ago
Ranked: The Largest U.S. Corporations by Number of Employees
We visualized the top U.S. companies by employees, revealing the massive scale of retailers like Walmart, Target, and Home Depot.
-
Markets2 weeks ago
The Top 10 States by Real GDP Growth in 2023
This graphic shows the states with the highest real GDP growth rate in 2023, largely propelled by the oil and gas boom.
-
Markets3 weeks ago
Ranked: The World’s Top Flight Routes, by Revenue
In this graphic, we show the highest earning flight routes globally as air travel continued to rebound in 2023.
-
Markets3 weeks ago
Ranked: The Most Valuable Housing Markets in America
The U.S. residential real estate market is worth a staggering $47.5 trillion. Here are the most valuable housing markets in the country.
-
Debt1 week ago
How Debt-to-GDP Ratios Have Changed Since 2000
-
Countries2 weeks ago
Population Projections: The World’s 6 Largest Countries in 2075
-
Markets2 weeks ago
The Top 10 States by Real GDP Growth in 2023
-
Demographics2 weeks ago
The Smallest Gender Wage Gaps in OECD Countries
-
Economy2 weeks ago
Where U.S. Inflation Hit the Hardest in March 2024
-
Green2 weeks ago
Top Countries By Forest Growth Since 2001
-
United States2 weeks ago
Ranked: The Largest U.S. Corporations by Number of Employees
-
Maps2 weeks ago
The Largest Earthquakes in the New York Area (1970-2024)