North American Free Trade Agreement (NAFTA)

Definition

NAFTA is a treaty made in 1994 that created a free trade zone between the United States, Canada, and Mexico. It eliminated most tariffs on goods traded among these countries.

Analogy

Think of NAFTA as a big shopping mall where the U.S., Canada, and Mexico have their own stores. Before NAFTA, each store had to pay fees to sell items from their store in the other two stores. But with NAFTA, they agreed to remove these fees so they could sell more easily to each other.

Related terms

Tariffs: These are taxes imposed on imported goods. They make foreign products more expensive to encourage people to buy domestic products.

Free Trade Zone: This is an area where goods can be manufactured, stored, handled, and re-exported without the intervention of customs authorities.

Trade Liberalization: This refers to reducing barriers like tariffs and quotas that restrict international trade.