Research Paper on NAFTA: Unlocking Trade Among US, Canada and Mexico

Introduction

The North America Free Trade Agreement (NAFTA) is an accord among three countries the US, Canada, and Mexico in 1994. The trade agreement removed several tariffs on commodities traded among the nations. The trading bloc's primary objective was to open trade in automobile manufacturing, agriculture, and textiles. Also, the agreement aimed at establishing conflict resolution processes, protecting intellectual property, and apply environmental and labor protections. NAFTA essentially restructured economic associations in North America, guiding unparalleled integration among the economies. Since the NAFTA implementation, regional trade, and cross-border investment among the economies have greatly improved. Nevertheless, NAFTA has stayed a constant target in the broader discussion over free trade. In essence, this paper will discuss whether or not NAFTA has produced significant net benefits for the Canadian, Mexican, and US economies.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

NAFTA Net Benefits

NAFTA has mostly benefited the three economies. For instance, two decades after the deal was implemented, regional trade sharply improved from approximately $290 billion in 1993 to more than $1.1 trillion in 2016 (Villareal & Ferguson 2017). Investments across the region also surged; for instance, the US foreign direct investment (FDI) in Mexico increased at the same time from $15 billion to above $100 billion (Villareal & Ferguson 2017). However, economists and other experts presume that it has been challenging to separate the direct agreement effects from other developmental factors such as expanded trade with China and abrupt technological change (Chatzky, McBride, & Sergie 2020). Besides, there is a persistent debate regarding NAFTA's impact on wages and employment. Nonetheless, some industries and workers encountered agonizing disruptions as they lost market share as a result of high competition. In contrast, others benefited from the new market opportunities created by the deal (Chatzky, McBride, & Sergie 2020).

NAFTA Impacts on the US economy

Since the NAFTA agreement was first implemented, the trade between the US and its neighbors tripled, growing faster than US trade with the rest of the world. As such, Mexico and Canada are the two largest markets for US exports, which account for more than 30% of the total trade (Chatzky, McBride, & Sergie 2020). Moreover, the agreement increased US gross domestic product (GDP) by approximately 0.5%, which is equivalent to an $80 billion increase to its economy since the deal was fully implemented (Villareal & Ferguson 2017). Even though this added growth per year is highly concentrated in specific industries, including auto manufacturing, the gains of the NAFTA deal are spread broadly across the country. On the one hand, Proponents of NAFTA approximate that 14 million US jobs depend on the country's trade with Mexico and Canada (Hills 2014). Further, there are almost 200,000 jobs that are associated with to export of products to NAFTA members created annually by the accord, which pay around 20% more on average in comparison to the jobs that were lost (Hufbauer & Cimino-Isaacs 2014).

Conversely, Challengers of the pact argue that it leads to the loss of employment and stagnated wages in the US, which was due to low-wage competition, increasing trade deficit, and taking the production to Mexico to reduce costs. As such, the trade pact is blamed for the decrease in US manufacturing jobs (Schwartz 2016). According to Hufbauer & Cimino-Isaacs (2014), the mobile auto industry in the US lost an estimated 350,000 jobs since the pact was executed. In contrast, the Mexican automobile industry jobs increased from 120,000 to 550,000 employees. Nonetheless, most economists believe that increased regional trade generates net benefits for the US. The US economy lost several jobs as a result of imports, while many others were created. The US consumers also gain immensely from reduced prices as a result of shifting manufacture to Mexico, lowering costs, and often improved quality products. PIIE study of NAFTA impacts found that a net loss of 15,000 jobs per year due to the accord and gains of approximately $450,000 for every job lost due to lower consumer prices and higher productivity (Hufbauer & Cimino-Isaacs 2014).

In addition, most economists argue that the latest issues of the manufacturing sector in the US are a result of other problems besides NAFTA. Autor, Dorn, and Hanson (2016) posit that US-china completion had substantial adverse effects on US jobs since 2001 when china joined the World Trade Organisation. They argue that the most significant manufacturing jobs decrease was from 17million to 11million between 2000 and 2010 is attributable to fundamental technological changes and trade with china (Autor, Dorn, and Hanson 2016). Thus, trade with China and technological changes have had a more significant impact on jobs. As such, NAFTA is a less critical employment loss causal factor. In truth, NAFTA's contribution to the growth of cross-border supply chains, it lowered production costs, improved productivity, and enhanced auto sector competitiveness against China.

NAFTA Impacts on Canada Economy

Canada has gained massively from the pact. It has witnessed an increase in the Mexico and US cross border investments since 1973. According to Villareal & Ferguson (2017), Mexican and US investments in the country have tripled. In particular, US investment in Canada increased from $70 billion in 1993 to over $368 billion in 2013 (Villareal & Ferguson 2017). Although Canada and the US have been trading partners for an extended period and opened its borders to the US in 1989, after implementation of NAFTA pact Canadian exports to the US increased from $110 billion to 346 billion, while the imports rose by a similar amount (Villareal & Ferguson 2017). Currently, Canada is the leading importer of the US agricultural products as its imports have increased as did its total agricultural exports to Mexico and the US.

Opponents of NAFTA in Canada argued that unlocking trade would ruin the nation's manufacturing industry. In contrast, the country's manufacturing sector jobs remained steady. NAFTA's proponents argued that it would trigger a speedy rise in productivity. However, the gap between the US and Canada productivity has remained wide. For instance, Canada's labor productivity held at 72% of US productivity levels (Villareal & Ferguson 2017). Generally, Canada has benefited from trade with the US, depending on it for 75% of its exports (Villareal & Ferguson 2017). In fact, most developed countries are much more diversified than Canada is, and they hardly ever depend on a single trading partner for more than 20%.

NAFTA Impacts on Mexico

NAFTA improved Mexico's agricultural exports to the US, which have boosted since the accord was implemented. In the auto manufacturing sector, many jobs have been created. A number of studies have found that NAFTA pact enhances productivity and reduced consumer prices in Mexico (Villareal & Fergusson, 2017). The accord helped Mexico shift from a protected economy to an open economy to trade. Mexico had lowered its barriers to trade when it entered the General Agreement on Tariffs and Trade (GATT) in 1986, which was the predecessor of the WTO. Upon agreeing on the NAFTA deal, Mexico removed the average tariff level of 10% left after joining GATT.

On the one hand, Mexico liberalized its trade, and decreased its public debt level, stabilized inflation, developed the country's foreign reserve, and introduced a balanced budget rule as a result of NAFTA accord. On the other hand, Mexico depends much on its exports to the US. For instance, in the 2008 financial crisis, Mexico was affected due to its reliance on exports to the US market (Villareal 2010). Proponents of the NAFTA deal promised that it would raise wages, the rapid growth of the economy, and curb emigration. However, since the pact inception, the country's economy has been growing for an average rate of 1.3% annually (Werner 2015), while poverty levels have remained at similar levels as in 1994. Besides, the Mexico wage gap has remained way behind the US wage rate, since Mexico's per capita income is growing at an average rate of a mere 1.2% yearly from 1993 to 2013, which is slow that Peru, Chile, and Brazil (Werner 2015).

As a partner in the NAFTA, Mexico's unemployment rates have increased. Experts have pointed out that this is due to exposing its farmers to compete with highly subsidized US farming, particularly corn producers. A CPER study found that the NAFTA deal ensures forced around 2million small scale Mexican farmers out of business, which increased illegal migration to the US (Weisbrot, Lefebvre, & Sammut 2014). As such, since the pact was first implemented, Mexican emigrants to the US, both legal and illegal, increased peaking in 2007 (Weisbrot, Lefebvre, & Sammut 2014). However, in 2008 Mexican born immigrants started returning to Mexico. On the one hand, NAFTA improves the Mexican economy through high-technology manufacturing, high wages, and increased foreign investment in the north. On the other hand, the more agricultural south was detached from this new Mexican economy. As such, this explains the rising inequality in the country, which stemmed from NAFTA oriented development in the north gaining higher wages from trade associated tasks (Guillen Mauro 2014).

Overall, Mexico has benefited from opening its trade to the US and Canada. In fact, most economists argue that non-NAFTA elements have impacted the country's current performance. For instance, high competition with china for the low-cost manufacturing sector probably reduced the country's economic growth and development (Peters & Gallagher 2013). Also, Mexico's public policies, such as land reforms, enable farmers to quickly sell their lands and immigrate to other countries, including the US. According to Hanson (2010) posit that Mexico's economic struggles are due to domestic problems, including dysfunctional regulations, the informal sector with low-productivity, and poorly developed credit markets.

Conclusion

In summary, NAFTA has produced significant net benefits for the Canadian, Mexican, and US economies. Although there have been losses to every NAFTA partners, its benefits outweigh these losses. For instance, the paper has established that the US losses 15,000 jobs every year. However, these Jobs are compensated through higher wages per person as a result of reduced costs of production. Canada has acted as the major market for US goods. By transferring auto manufacturing to low-cost Mexico, the US auto sector has the edge over the china auto sector. As such, trade between the US and other trading partners have tripled. Canada imports and exports to and from the US have increased. It is the leading importer of US agricultural produce, relying on 75% of US imports. Canada's wages have remained relatively the same as well as its labor productivity levels. Canada has long been the largest exporter of vehicles to the US, together with Mexico.

Overall, Mexico has gained from NAFTA since the trading bloc creates many jobs in the country, raised wages, and labor productivity increased. As such, the countries unemployment rates have declined. Mexico exports its manufactured goods and agricultural goods to the United States. NAFTA stabilized the country's currency from inflation. Moreover, Mexico liberalized its trade and reduced its public debt. Therefore, considering the pros and cons of evidence of NAFTA, I tend to believe that the economic bloc has produced significant net benefits f...