Critical Thinking Example: Will NAFTA Survive a Trump's Presidency?

US President Donald Trump has not hidden his dislike for the North American Free Trade Agreement (NAFTA). After repeatedly pouring scorn on the pact, he recently softened his stand by saying that he intends to renegotiate the agreement. A problem occurs in that it is not clear what the president will do since he has not given any specifics. While a renegotiated NAFTA could have serious consequences, Trump is likely to push through what he thinks will make the US situation better.

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There are several differences between NAFTA and the European Union. A notable difference is that the European common market has a common tariff that applies to all member countries. However, NAFTA member states are separated by rules to do with economic and social issues, with numerous obstacles that significantly affect business activities. While the EU has its own currency known as the Euro, NAFTA member countries use their own respective currencies. Also, whereas the EU is a separate and political body whose policies are influenced by the European parliament, NAFTA is more like a contract mean to promote trading activities among member states.

A manufacturing company shifting its manufacturing base from Seattle to a maquiladora is a good idea even if it sells its products primarily in Washington. A maquiladora is a factory whose operations are under preferential tariff programs set up and run by Mexico and the United States. Manufacturing equipment, assembly components and materials used in such a factory are allowed to get into Mexico duty-free. The manufactured products can then be exported back to the US at much lower tariffs when compared to those from other nations. The company can benefit from labor cost reductions of at least 50%, a meticulous and highly skilled workforce, six-day working week as well as logistical benefits over other offshore locations.

The last several years or so have showed that the European Union has achieved much more success when compared to NAFTA. Hence, the U.S., Canada and Mexico should definitely form a closer knit union. Despite having one of the worlds strongest economies as a member state, NAFTA still lags behind its European counterpart. For instance, Canada has experienced an average growth of 3% while some European Union members like Ireland, the Czech Republic and Poland have seen an average rate of at least 5%. A notable reason why NAFTA is not that strong is due to the absence of a common external tariff. The three member states still do not agree over regulations on certain social and economic issues, meaning that there numerous barriers for both individuals and businesses. For instance, Mexican citizens have to go through several bureaucratic barriers before they can get into the US, meaning they spend a lot of time and money going through them.

In October 2016, the Chinese Renminbi (RMB) was officially anointed by the IMF as an elite worldwide reserve currency. It joined a select bunch of currencies that make up the Special Drawing Rights, which is the artificial currency unit for the IMF. There is no denying that the RMB is causing ripples across the world while at the same time restructuring global finance. At the moment, the Chinese economy is the worlds second largest and continues to grow in leaps and bounds. Bearing this in mind, it would not be an understatement to say that RMB will become a dominant reserve currency in the future, probably even outdoing the dollar.

References

Schaffer, R., Agusti, F., Dhooge, L. J., & Earle, B. (2014). International Business Law and its Environment. Boston, MA: Cengage Learning.