The North American Free Trade Agreement

The North American Free Trade Agreement

Introduction

The North American Free Trade Agreement (NAFTA) is a free trade agreement between three countries that is the United States, Mexico, and Canada. The primary aim was to eliminate the trade barriers and most of the tariffs on products and services traded between the three countries with the sole purpose of creating free trade block among the North American countries. The introduction of NAFTA has led to economic growth among the states due to the improvement of international rights for business investors, reduces the cost of doing business, and increases investment and growth, mostly for small businesses. It has led to a significant impact on investors who which to invest in any of the countries due to the elimination of all duties and qualitative restriction that hinders most of the investors in taking the risk in a foreign country. This paper discusses the impact of the North American Free Trade Agreement between the United States and Mexico.

History Performance of the United States since the introduction of NAFTA

The North American Free Trade Agreement came to an effort in January 1994 that started with the United States and Mexico while Canada joined later. The NAFTA gain inspiration and motivation from the success of the European economic community between 1957 and 1993. The United States president Ronald Reagan first proposed the idea of eliminating trade barriers and creating a free trade block in North America. The proposal was later pushed through by President George H.W. Bush, who opens trade negotiations with Mexican presidents Carlos Salinas. At the same time, they were later joined by Canada prime minister Brain Mulroney.

The goals that brought the three countries together were to do away with barriers and tariffs that prevent free movement of people and products across the states. The debate of ratification sometimes took they were warned it would bring adverse effects to the ability of workers to organize due to depress wages (Hills, 2014). The proposal of having a free trade agreement between the three countries was signed to law by the United States president Bill Clinton in December 1993 before coming to effect in January 1994.

The implementation of NAFTA leads to dramatic losses in manufacturing employments with more than seventeen million jobs from 1994 to 2016. In 2018, the leader of the three nations came together to renegotiate their deal of the business due to different impacts and challenges experienced in the implementation (Blecker, Brid, Carlos, & Salat, 2017). This led to a new formation known as the U.S Mexico and Canada Agreement (USMCA).

Since the enacted NAFTA, the United States has dramatically benefited economically due to the introduction of free trade among the three countries. The United States is considered one of the winners of the NAFTA due increase in real per capita gross domestic product by more than thirty-nine percent between 1994 and 2015 (Villareal, & Fergusson, 2017). This is because the United State become the trade destination for export for both Canada and Mexico that account for more than a third of the total export (McBride, & Sergie, 2017). This led to an additional of the gross domestic product with more than eighty billion dollars, while several billion are added growth per year.

Under the impact of NAFTA, the United State has a trade surplus of more than twenty-eight billion for services that was thirty-six percent in the year 2009 (McBride, & Sergie, 2017). It experiences a trade deficit of $ 94.6 billion in 2010 due to an increase in export and import of goods. This led to an increase in investment activities where the United States direct investment focuses mostly on manufacturing, mining sector, holding companies, and insurance and finance (McBride, & Sergie, 2017). This led to an increase in foreign direct investment for more than sixteen percent in 2009.

In 2009, many economists critics the impact of NAFTA due to the increase in unemployment and loss of business ventures to other countries. It also led to wage stagnation in the United States due to the rise in competition as other countries’ free investments in the United States increasing competition to the domestic industry (Villareal, & Fergusson, 20174. Most of the United States companies were moved to Mexico due to trade deficits and lower costs. Most of the workers and labor leaders blamed NAFTA due to a decline in the United States manufacturing jobs.

NAFTA has strengthened the economic power of the United States to compete with the high economic growth of the Republic of China. It has contributed to the development of the cross-border supply chain that increased productivity, reduced the cost, and enhance foreign exchanges, therefore, improving the competitiveness of the United States against China and other countries (McBride, & Sergie, 2017). This led to the integration of industries among three states that boosted the economic power of the United States.

History performance of NAFTA in Mexico

NAFTA led to a significant boost of the Mexican farm export despite most of the economists terming Mexico as a looser of the NAFTA among the three countries. Mexico per-capita grew by twenty-four percent between 1994 and 2015, which was the lowest among the three countries (McBride & Sergie, 2017). This was due to the increase in export and import business between the three countries.

Mexico benefits from auto manufacturing industries that increase employment opportunities reducing more problems experienced in the countries due to unemployment. This is because Mexico provides readily available labor at a lower cost and many auto workers, leading to most of the investors moving their companies in Mexico (McBride, & Sergie, 2017). It is regarded as the most positive impact of NAFTA in Mexico due to an increase in productivity and consumer prices.

Most of the Mexican policymakers viewed the idea of NAFTA as an opportunity to accelerate their economic growth. By 2009, Mexico had stabilized its economic growth by reduction of public debts, balanced the inflation rate, introduced a balanced budget rule, and improved the country’s foreign exchange reserves (McBride, & Sergie, 2017). It helps the country handle the recession rate experienced in 2008 due to increase productivity from the industry’s growth.

Despite the high recession rate in 2008 that hit most of the country, Mexico’s state was unable to record more than a five percent increase in the gross domestic product by 2010 due to the implementation of NAFTA (McBride, & Sergie, 2017). The economics growth continues to around two percent per year until 2015 due to the expansion of the manufacturing industry and increases in employment. The increase in employment also led to the reduction of immigration of Mexican to foreign countries as there are more income sources in the home country.

Despite the overall high improvement of the Mexican economy growth, most of the analysts view that Mexico suffered disconnections on what was offered under NAFTA. The economic growth had mixed outcomes as the country experienced a thirteen percent increase every year while other countries in Latin America, such as Brazil and Chile, that had significant economic growth (Blecker, 2014). Despite the rapid increase in economic growth, the poverty line remains the save, and few people were able to transmit from poverty. This led to Mexican born immigrants started leaving the county in search of better living standards.

Industries that have Grown since NAFTA in the United States

The United States experiences again in the trade and investment industry under NAFTA due to an increase in export and import business. NAFTA leads to the liberalization of investment that reduces the risk of cross border transactions (Green, & Payan, 2017). This led to an increase in more domestics and foreign investment experiences in the country, leading to a high rise in gross domestic product. NAFTA changes the regulation on employment patterns, trade implications leading to an increase in trade volume.

The industrial level in the United States increased due to the implementation of NAFTA. Various industries such as electronics, transportations, metal and metrics, and machinery flow increased in quantities during this time. The United States mostly dominated the chemical, electronics, and plastic industry due to the availability of resources (Green, & Payan, 2017). NAFTA expanded this industry since most of the companies and investors were able to move their products in other foreign markets.

The United States experienced a decrease in the labor market industry due to many of the manufacturing employment shifted to other countries, especially Mexico (Hufbauer, Cimino, & Moran, 2014). The country experiences loss of jobs in the economy due to NAFTA leading to most of the labor makers and unemployment people blaming the implementation of NAFTA (Green, & Payan, 2017). The industry loses since Mexican could provide child labor making most of the investors transfer their business to Mexico due to available labor at a lower cost.

Industries that have Grown since NAFTA in Mexico

Mexico benefited from the growth of the labor industry from the NAFTA. Elimination of trade barriers and the creation of a free market among the three countries led to most of the manufacturing industry shifting their workplace to Mexico due to the availability of cheap labor (Villareal, & Fergusson, 2017). This reduces the high cost spent on labor hence able to increase its investment in the country. It led to an increase in employment with high wages and improved the economic growth rate of the country.

Mexican was the winner of the NAFTA problem associated with the immigration industry. Implementations of NAFTA led to the reduction of illegal migration experienced by Mexican who wish to work in foreign countries since there was the removal of significant restrictions hindering their free move to other countries such as the United States ((Villareal, & Fergusson, 2014). It also reduces emigration in the countries in search of employment as most of the manufacturing industries had shifted to their country.

Increase in the foreign investment industry in Mexico following the passage of NAFTA. This is because most of the investors set up most of their manufacturing companies in Mexico due to the availability of affordable labor investing billions of dollars. The industry improved due to an increase in manufacturing shared exported in other countries, especially the United States (Villareal, & Fergusson, 2017). It also ensures the easy export of agricultural products that Mexico was the main product in the export business. NAFTA help Mexico improve its meat industry to become the second-largest exporter of meat in the meat industry.

Removal of trade restrictions affected the agricultural industry of Mexico despite being the backbone of their economy. This is because NAFTA brings high competition of agricultural produce in the market, leaving for losses of values of Mexican produces (Blecker, 2014). Mexico had not invested in technology and infrastructure in the industry that led to high competition in the market. This led to no changes in the poverty level and living conditions of most of the Mexican despite an increase in economic growth due to NAFTA as it put Mexican out of business.

How NAFTA is a Free Trade Agreement

NAFTA become a free trade agreement since the three countries agreed to remove trade barriers and tariffs that allowed them to trade their products and services freely. The agreement leads to control of import and export tariffs imposed by each country that lead removal of restrictions such as imposed quotas (Rodrik, 2018). It ensures no country can increase the import or export duty helping investors of three countries to free invest in any country without much restriction. The removal of tariffs leads to trade liberalization between the countries leading to rapid economic growth. Most of the trade barrier removed involved those of the automotive industry, foreign investment, agricultural industry, government procurement, and textiles and apparel industries.

How NAFTA is Not a Free Trade Agreement

NAFTA was not purposely formed for free trade since it focuses on reducing barriers hat hinder the three countries from having a smooth condition in improving their economic growth (Rodrik, 2018). This is because the agreement did not overcome the obstacles faced by educated Mexican from working in the United States. The agreement only focuses on the trade of good and services but introduce high protection of copyrights and patents by expanding the length and scope of these governments from granting monopolies.

Recommendations

Most people feel that NAFTA did more bad to the economy than good, but in my opinion, the agreement had more benefits in some countries. One of the reconsiderations of the agreement is no restriction put on agricultural products to ensure there is a mutual balance between the three countries. The negotiation should consider each country’s economic back born before providing free trade to ensure what is brought in the table is equal and fair. This would much benefit the Mexico that has faced great frustration from the United States subsidized agricultural produce due to the implementation of NAFTA. It should ensure each country is able to protect its primary produce from exploitation in the market by other countries produces due to free trade.

Conclusion

NAFTA has led to rapid economic growth between the three countries as they free trade their products and services with less restriction. It has led to an increase in direct foreign investment, improved industrial performance, and trade industry in the United States while there is an increase in unemployment due to the loss of the manufacturing industry. Mexica gain an increase in labor and employment, reduced emigration, and improved economic growth while losing on the agricultural industry.