Is NAFTA Beneficial or More Harmful to the United State Economy?

Introduction

Many countries or states enter into agreements or treaties to improve their well-being beyond their capabilities under sole platforms. The trade agreement offers a good illustration of such treaties signed by states to improve trade relation amongst themselves. The North America Free Trade Agreement (NAFTA) is a trilateral treaty involving the US, Mexico and Canada. It established the largest free trade area in the world (Amadeo, 2018). NAFTA agreement has both positive and negative effects that benefit and adversely affect the United State economy.

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Benefits of NAFTA to the U.S EconomyTariffs are imposed by governments in order to restrict cheap imports that would affect the consumption of local products. However, the elimination of tariffs has improved trade between member countries. The ban on oil import from countries like Iran in order to import from Canada and Mexico made U.S citizens access to gas at a cheaper price. This tariff reduction led to an increment of about 0.08% on US welfare (Amadeo, 2018). Again, US manufacturing sectors including the automobile manufacturers relocated to cheap operating zones in Mexico. Campoy (2017) found the companies won themselves a competitive edge against global automakers by translating the cost savings to ensure affordability.

The three-country block provided a wider market for the American companies. American exporters delivered forty percent of their produce to Mexico. This greatly improved the US economy since most of these exports were designed domestically. NAFTA helped the US to outsource portions from Mexico which facilitated the processing of their products. As a result, the small export business expanded as many Americans relied on exporting their merchandises to Mexico and Canada (Yamazaki, Abo, & Juhn, 2013). US businesses attained opportunities for market growth and expanding their revenue stimulating the recuperation of the economy. The upgrade of export structure bore more diversification. U.S investors found NAFTA as a destination that is attractive for business investment. An agreement was made in order to make U.S a region that offers economic competitiveness. By undertaking these actions, Amadeo (2018) observed the cost of commodity prices declining to make products affordable to citizens.

NAFTA brought down exchange hindrances to accord more decisions to shoppers at aggressive costs and expanded thriving for every one of the three nations. NAFTA bore the worlds' largest facilitated commerce platform with around 450 million people and $17 trillion worth of products (Amadeo, 2018). Its existences reinforced a specialization input in the US in manufacturing organizations, agriculturists, specialists, and retailers (Boskin, 2014). From 1993 to 2008, exchange among the NAFTA nations dramatically multiplied, from $288 billion to $902 billion (Derbez-Bautista, 2011). The cooperation in trade allows each NAFTA nation directs almost $1.9 billion in the trilateral exchange. The approach tripled foreign direct investment with U.S businesses investing approximately $452 billion with a reprisal investment of $240.2 billion from Mexico and Canada (Amadeo, 2018). The investment benefitted the United States through domestic employment opportunities and export labor as expatriates in Canada and Mexico.

Harmful effect of NAFTA to the U.S Economy

Conversely, NAFTA poses negative impacts on the US economy evident in President Trump bid to renegotiate the trade agreement. According to Amedeo (2018), the U.S has suffered job loss resulting from this trade agreement. US companies brought the major blow to US citizens by shifting their operations to Mexico seeking cheap labor. The decision saw US workers facing unemployment and accommodating lower pay if they followed the companies to Mexico plants. Some more workers would lose a bargaining power hence suppressing wage growth (Trump, 2017).

The relocation of manufacturing companies to Mexico carried with them employment platform. An estimated 500,000 to 750,000 United States lost their jobs as immigrants' suppressed wages in the United States (Campoy, 2017). The threat by companies to relocate to Mexico denied workers opportunity to bargain for better wages. Threats to relocate the company operations to Mexico denies U.S workers bargaining power where the union would petition for their case. The exchange saw workers get a raw deal, particularly those engaged under the Maquiladora program. Although growing the region's employment rates, a majority were Mexicans despite the low pay. Americans working in that region compromised pay demands to secure employment. Campoy (2017) observed the vicinity of unemployed Mexicans took away approximately one million U.S. occupations, forcing normal wages down in Michigan, California and Texas industries.

The de-industrialization process caused by NAFTA leaves elevated unemployment rates and slow labor market adjustment. The declined labor-force participation condemn Americans to greater job churning. This reduces the lifetime income as industries respond to import competition by relocating to cheap Mexican zones. The presence of increasing trade deficit highlights a loss of revenue when US imports finished products using components initially exported to Mexico. Raising tariffs for the US on such imports would itself hurt the business performance of manufacturers making such components.

Recommendations

NAFTA renouncement is not a genuine strategy choice and would erode the gains realized as U.S. firms access a larger market in Mexico and Canada. Renegotiation of the NAFTA is necessary to streamline its shortcoming to the US where a dual economy experience leaves a vast majority of citizens excluded from employment opportunities. Additionally, the government should support its industries to boost distribution channels, quality control, inventory management, and marketing. US government ought to implement aggressive policies towards the industries in order to raise competitiveness in different sectors (Yamazaki, Abo, & Juhn, 2013). This will enhance the competitiveness of their quality goods exported.

The United States should seek access to additional niches in other industries beyond manufacturing zones. Such niches would eliminate the trade deficits experienced by the United States. Lastly, improved trilateral communication and cooperation is critical to prevent entry of unsafe products into the US. Such policies are necessary particularly targeting automobiles imported from Mexico to ensure they attain the safety requirements set and continually reviewed by all NAFTA member states.

NAFTA brings expanded market opportunities for manufacturing industries alongside other American exporters to access Mexican and Canadian population. Its present form appears to benefit Canada and Mexico more than the United States. Beyond the competitive edge by automobile manufacturers and growth of US agricultural exports, the government should prioritize renegotiating for a fairer deal for its working population. Breaking the agreement will disadvantage US firms relying on their foreign subsidiaries to match global competitiveness. Renegotiation to expand the share of NAFTA's advantages to the US citizens by eliminating the amorphous policy that harms the US economy by eroding employment opportunities and hampering wages growth.

References

Amadeo, K. (2018, March 05). The Balance. Retrieved April 25, 2018, from Six Problems With NAFTA. Retrieved April 30, 2018, from The Balance https://www.thebalance.com/disadvantages-of-nafta-3306273

Amadeo, K. (2018, April 24). What Is the North American Free Trade Agreement? Retrieved April 30, 2018, from The Balance : https://www.thebalance.com/nafta-definition-north-american-free-trade-agreement-3306147

Boskin, M. J. (2014). NAFTA at 20: The North American Free Trade Agreement's Achievements and Challenges. California: Hoover Institution Press Pulication.

Campoy, A. (2017, May 25). Nafta is good for America, but it's falling to Canada and Mexico to explain why. Quartz. Retrieved April 30, 2018, from https://qz.com/990511/nafta-is-good-for-america-but-its-falling-to-canada-and-mexico-to-explain-why/

Derbez-Bautista, L. E. (2011). Advantages, Disadvantages and the Future of NAFTA. School of Law of the University, 1-12.

Trump, D. (2017, June 02). Trump wants to renegotiate NAFTA - here's what you need to know. Business Insider. Retrieved April 30, 2018, from http://www.pulselive.co.ke/bi/finance/trump-trump-wants-to-renegotiate-nafta-heres-what-you-need-to-know-id6171735.html

Yamazaki, K., Abo, T., & Juhn, J. (2013). Hybrid Factories in Latin America: Japanese Management Transferred. New York: PalGrave MacMillan.