NAFTA & the WTO

The 1990s built the legal architecture for the most globalized economy in history.

The brief

In a two-year window between 1994 and 1995, the United States, Canada, and Mexico created the North American Free Trade Agreement — the most ambitious free-trade zone yet to join rich democracies to a developing economy — and the World Trade Organization succeeded the GATT, whose dispute process was real but slow and easy for losing governments to block. The WTO made the system permanent, extended its rules into services and intellectual property, strengthened dispute settlement, and in 2001 brought China — a fifth of humanity — inside the rulebook. Together, NAFTA and the WTO supplied much of the legal machinery for 1990s globalization. Manufacturing, finance, and supply chains rearranged themselves around the new rules within a decade, often spanning three continents to assemble a single product.

The 1990s trade order was extraordinarily successful by its own metrics: global trade expanded rapidly, hundreds of millions escaped extreme poverty (mostly in China and India), and imported goods became cheaper in rich countries. It was also politically explosive in ways its architects underestimated. NAFTA accelerated plant relocation and sectoral job losses already under way, though its aggregate effect on US employment was modest. The larger shock came with China's accession: economists David Autor and colleagues estimated that import competition cost roughly 2.4 million American jobs by 2011, losses concentrated in communities that struggled to replace them. Counties most exposed to that trade shock later recorded higher rates of suicide and related deaths, part of the wider deaths of despair crisis that Anne Case and Angus Deaton documented. The political backlash — Ross Perot's 1992 warning of a 'giant sucking sound', the Seattle WTO protests of 1999, the rise of economic nationalism on both left (Sanders) and right (Trump), Brexit, the bipartisan American protectionist consensus that emerged after 2016 — was sustained, and is now the dominant political fact in much of the developed world. The open-trading order of the 1990s is being deliberately dismantled in real time: by Trump's tariffs, by the CHIPS Act and IRA's return to industrial policy, by Europe's trade defences against China, and by a WTO whose dispute court the United States has left without judges, and so without a quorum, since December 2019.

Why nowThe retreat from hyper-globalization now visible across supply-chain strategy and national-security policy — 'friend-shoring', 'de-risking', reshoring — joins the political backlash to NAFTA-WTO globalism with the shocks of pandemic and great-power rivalry. Whether the order taking shape after 2024 produces a more managed, slower, regionalized trade system, or genuine fragmentation into hostile blocs, is the largest question in the global economy. The 1990s consensus is gone; what replaces it is being negotiated, mostly without negotiation, in tariffs and export controls — the very instruments the WTO was built to discipline.