The North American Free Trade Agreement

NAFTA, The North American Free Trade Agreement, was signed in 1994. NAFTA is basically a free-trade agreement between Canada, Mexico, and the United States. The idea behind it is to promote the North American economy and to protect the intellectual property rights of the businesses. Under the NAFTA, all non-barriers to agricultural trade between United States and Mexico were eliminated. In 1998, all tariffs related to agricultural trade between United States and Canada was removed. Between Mexico and Canada, most of the tariffs were eliminated within 15 years from the beginning of the NAFTA application.

Certainly, one sector of the U.S. economy that has been affected the most by the NAFTA is the labor union. Almost all of the labor unions in the U.S. have opposed NAFTA. They fear that they would lose their jobs to the Mexicans because of lower wage rates there. Additionally, there is a trade deficit especially between United States and Mexico. Since 1994, there are many jobs destructed than jobs created in all 50 states. An increase in wages of the workers producing exports, but growing trade deficits have meant that the number of workers who have been hurt by imports has exceed the number who have benefited through increased exports.

In contrast of that, the agricultural sector of U.S.A has seen an overall positive effect with 22% growth of agricultural exportation to Canada and Mexico. It is also important when we look at the national GDP and how United States is a big player under NAFTA. United States’s GDP is 20 times larger than Mexico’s GDP and 10 times larger than Canada’s GDP.

However, Mexican economy benefited from NAFTA more than United States and Canada.  First, Mexico grew into richer countries by the way the per-capita income increased. Second, the unemployment rate decreased progressively, because American and Canadian industries moved and continue moving to Mexico. In addition, the foreign investments and exportation increased to Mexico. As much as of it’s advantages, NAFTA brought some disadvantages to the Mexican economy. The most important one being Mexico’s loss of it’s small businesses, because the trade barriers came down.

 

Furthermore, Mexican farmers are against the NAFTA as agreement because they think that US farmers who benefited from their government subsidies, affect the prices of Mexican agriculture. Therefore many Mexican sectors was affected by NAFTA and shown decline in the wages.

Yet, many economists argue that NAFTA has done well for all three countries. If we focus on United States’ economy, we should think about the recession as supplement problem of the actual situation. Government encourages public spending and adds trillions of dollars on US economy but manufacturing is not improving yet, so this contrast couldn’t accelerate the process of recovery. Thinking about jobs lost in the last three years, about half millions jobs were eliminated by employers; in my point of view government must focus on improving investment on sectors that need to hire more eligible workers to reduce the rate of unemployment for the next coming years.