The North American Free Trade Agreement liberalized trade between the three North American nations — Mexico, the United States, and Canada — to great success and positive overall effects on the economy, even though some anti-trade activists argue otherwise. Now, should we expand the agreement to include other nations in Europe?
The European Union crisis has left the region’s currency union and single market very unstable, and the lack of consensus regarding bailouts to some of its members has left other members questioning their future in the Union. In fact, some of Britain’s MPs are looking to call a referendum to discuss whether or not the U.K. should continue to be part of the European Union. Conflicts have risen between London and Brussels, most recently about the British veto thwarting an EU pact directed at shoring up the foundations of the euro.
If the United Kingdom does leave the European Union, would they join NAFTA? For one, the United States, Canada, and the United Kingdom have some shared history, and New York and London’s financial markets are the biggest in the world. Allowing these two markets to trade freely would allow American capital in the U.K., and U.K. capital would find itself funding American industry, research, and development. The U.S. accounts for 90 percent of U.K.’s North American trade, even when this is only 16 percent of all British trade. NAFTA might even be more of a natural fit for the U.K. than the EU is, since the British welfare state is considerably smaller than the average EU member state, and its tax rates are lower — small wonder why Britain has weathered the crisis better than Greece or Portugal. Finally, American goods would be easier to find on British shelves and showrooms, boosting American producers.
A second candidate for inclusion, surprisingly, is Iceland. The small volcanic country of less than 320,000 people was severely damaged by the recent financial crisis, and effectively went bankrupt. In reorganizing, they looked at the euro as an alternative currency to stabilize their economy. However, spooked by the recent euro crisis and some sovereignty issues (mainly loss of control over their fishing), they could instead look at the loonie, the famed Canadian dollar. In fact, Canadian authorities are able to provide Iceland with the currency needed (a small country does not need that many dollars to monetize itself). Canada is willing to do so, and both economies are (presently) reliant on natural resources and fishing. Their monetization with Canadian dollars would be unilateral, which means no currency union (like El Salvador in 2001). This would make Iceland’s transition into NAFTA a very easy one.
Given the positive results of NAFTA since its enactment, an expansion to cover the North Atlantic shouldn’t be any less successful. Britain and Iceland have very similar economies to current members of NAFTA, and it would only strengthen North America’s position as a regional trade hub, this time covering the North Atlantic.