NAFTA refers to the North America
NAFTA refers to the North America free trade area. It was an agreement which sought to reduce the trade barriers among the member states. This trade agreement was between America, Canada and Mexico. Though negotiations were completed on December 1992, the agreement took effect as from 1st of January 1994. This agreement sought to improve trade relations among these three states by eliminating or reducing the trade barriers which were in place. NAFTA also sought to expand the markets for the three states as well as increasing innovation and economic growth for the states.
In the recent past, there have been calls from different sectors in the United States for the control of NAFTA’s activities especially due to the negative impacts this agreement has on employment level and the manufacturing sector. Also, this trade agreement has led to environmental degradation in the United States a major reason as to why the government should intervene and take initiative to renegotiate the terms of the agreement. However, despite the negative impacts NAFTA agreement has on the economy of the United States, it has its own positive impacts which have greatly influenced trade between the United States, Canada and Mexico.
Most of the goods which are exported by the United States are traded in Mexico and Canada. As such, NAFTA agreement has contributed to the increase of trade within the region with the United States being the major beneficiary (Griswold, para 1-2). Effects of NAFTA on the economy of the United States NAFTA trade agreement was established with an aim of increasing trade by removing trade barriers among the member states. The export sector was the first beneficiary of this agreement. With the signing of NAFTA agreement, exports of the United States doubled almost immediately.
This is due to the opening of new markets and the reduction of tariffs in these three nations. Mexico particularly provided new markets for Canada and America thus increasing their exports. Prior to the introduction of NAFTA, Canada and America were having trade agreement and therefore introduction of Mexico only expanded their markets. America being the largest and the richest of the three partners was better placed with its production doubling within the first one year after the signing of this agreement. Increase in trade and market also necessitated an increase in production to cater for the increased demand in the market.
Need to increase production led to a reduction in the unemployment level as people were employed in the export sector as well as the manufacturing sectors. Also, the NAFTA agreement opened up the borders for the three countries thus making it easier for the United States citizens to seek for employment in either Mexico or Canada. This led to an increase not only of trade and commerce but also in employment level in the United States. After the enactment of the NAFTA agreement, the economy of the United States grew from $ 120.
3 million in 1993 to over $ 135 million by the year 2001. United States also exports more that 25% of its agricultural products to Canada and Mexico with agricultural trade increasing by 55% between United States and Mexico. Agricultural trade between these two countries contributes about $ 11. 5 million for the United States. Agricultural trade with Canada also increased to constitute about 50% while earning revenue of about $ 13 billion. This has contributed greatly to the economic well being of the country (Griswold, para 3-5).
Another benefit brought about by NAFTA is increase in foreign investment as well as domestic investment. After implementation of the agreement, some of the American industries relocated to Canada and Mexico where they were operating at a subsidized cost as well as obtaining cheaper labor. This ensured they were producing profitably and at the same time reducing costs associated with exports. Apart from foreign investment, internal investment was also boosted by this agreement. Increased market led to higher demand for goods within the region.
High production was thus required which encouraging domestic as well as foreign investment. This led to increased living standards of the citizens in the United States. Increased in production both locally and within the trade agreement borders also ensured that citizens of the United States were obtaining a variety of imported goods at fairly cheaper prices than before the signing of the NAFTA agreement. United States invested heavily in Mexico after NAFTA agreement was signed with the investment in manufacturing companies amounting to more than 2 billion annually.
The domestic investment amounted to about $ 200 billion annually since the formulation of NAFTA agreement. Foreign and direct investment also led to creation of jobs in United States. Between the years 1993 and 2001, more than 2 million jobs had been created in the united state thus increasing the overall economy of the country. Unemployment rate during this period declined from 6. 9% to 4% (Larsen & Coe, para, 2-3). Negative impacts on NAFTA agreement on the economy of the United States
It has been argued that the NAFTA trade agreement between the United States, Canada and Mexico was efficient in the short run and this is evident with the continued rising of the calls to review the terms of the agreement or its abolition. Despite the achievement of the NAFTA agreement, it has had adverse effects on the United States economy especially due to the increased unemployment rates being experienced in the country which can be directly attributed to this trade agreement. This agreement is also blamed for the trade deficit that the United States has with Mexico and Canada.
After the signing of the NAFTA agreement, the borders of the United States were opened up to foreign investors from Canada and Mexico. Also, all trade barriers were eliminated which necessitated the country to treat the investors and investments like they were treating local investors and investments. This meant that the Canadian and Mexican investors were allowed to trade or invest in the United States at subsidized rates comparable to those imposed on local production (Scott, R. para 2-3). Foreign direct investment increased in the United States which brought stiff competition to local producers.
Also, under NAFTA agreement the government could not impose anti-competitive laws to protect the infant industries within the countries. Mexico in particular invested heavily in the production and manufacturing sector in United States and since their production processes as well as technology was high, this led to the closure of most of the production firms in the United States as they could not withstand the competition in the country. The manufacturing and production sector in the United States which supported over 800,000 jobs was displaced due to the competition between the years 1993 and year 2002.
Most of these jobs which were lost consisted of high paying jobs which greatly impacted the economy of the country. Also, apart from leading to loss of the best jobs in the country, NAFTA agreement has greatly influenced or contributed to the income inequality experienced wishing the United States. The real wages of the workers in the manufacturing industries have become suppressed thus decreasing and lowering the living standards of most of the citizens in the country. Also, NAFTA has led to the weakening of the workers power of bargaining and also their ability go form trade unions.
Lack of bargaining powers by the workers have led to unfair pay in the work place and also lack or reduced fringe benefits which used to be there before NAFTA agreement was enacted. In the short run, NAFTA was effective in creating jobs to the United States citizens but in the long run, it has had adverse effects on the manufacturing sector which was a major employment agent. Also, lack of labor laws to ensure that workers are guarded and protected from unfair employees has also contributed to the unfair treatment that workers receive from the direct investors as well a multinational companies operating within the United States.
Instead of protecting the workers, NAFTA agreement favors the investors thus giving the investors power to exploit the workers (Larsen & Coe, para, 5-7). Manufacturing industries in United States as mentioned above suffered a big blow after enactment of NAFTA agreement. The opening of the country’s borders led to high competition within the country. During this period also, labor in the United States was fairly costly than in Canada and Mexico. This made most of the industries to relocate to Canada and Mexico to seek for cheaper labor and less stringent environmental control measures.
The manufacturing industry was a major employer in the United States thus contributing largely to the nation wide economy. Their relocation to Canada and Mexico has had adverse effects on the economic conditions of the citizens as well as the government. Also, their relocation let to the loss of potential employment opportunities for most of the citizens in the country thus contributing to the high levels of unemployment being experienced today in the United States. This relocation of the industries also contributed to income inequality witnessed in the country and also lowering of the wages for the employees.
The United States is today being forced to import most of the goods which it usually used to produce from Canada and Mexico thus increasing its trade deficit (Scott, para 4). Brain drain is another problem experienced in America. Since the implementation of NAFTA, most of the educated Americans left the Canada and Mexico to look for better employment terms and opportunities. This has led to a decrease in the manpower in the industries thus a drop in the countries productivity. This has also led to higher costs for the government as manpower is outsourced from other countries.
Migration has also been on the rise in these three countries since introduction of this agreement. Since introduction of NAFTA trade agreement, the migration rate to the United States especially from Mexico increased as people sought labor in the country. This led to an increase in the supply of labor thus pushing down the wages and salaries. This has led to poor living conditions as workers are paid lowly although the companies make supernormal profits. This has also heightened the disparity in income distribution in this country.
Also, increase in immigration to the United States has also increased the government’s spending on social amenities and security. Workers or immigrants who works in the country are usually illegal immigrants thus do not contribute to the gross domestic product. This has also increased the security threat in the country especially in this era of terrorism. Environment is also another area which is not covered by NAFTA and which has cost United States a lot of money in trying to preserve it.
Under the NAFTA agreement, there are no environmental laws to govern the investors from polluting or even exploiting the environment. There is a clause in the NAFTA agreement which states that once a country agrees to sell anything in form of a commodity; it cannot in the future refuse to sell it. This clause has contributed greatly to environmental degradation as well as a threat to the natural resources. The United States is facing difficulties in its aim to conserve its environment especially due to the lack of environmental laws in the NAFTA agreement.
The country cannot put across measures to ensure that the investors whether foreign or domestic are environmental responsible since this would be seen as a violation of the NAFTA agreement. Deviation from the NAFTA agreement is usually very costly thus than compliance (Scott, para 9). NAFTA agreement has had both long term and short term effects on the country’s economic conditions. The agreement as discussed above had positive impacts in the short run but in the long run, it has adverse effects on the economy and is also a major contributor to the trade deficit in the United States.
As per the current studies, all the 50 states in the United States have recorded high unemployment levels including the District of Columbia especially due to the diminishing and replacement of major manufacturing industries which were major employment sectors in the country. After the enactment of the NAFTA trade agreement, the export of the United States to doubled due to expansion of the market which led to an abrupt economic growth. Investors from the United States also invested in other countries thus earning the country more income from these foreign investments.
However, increase in trade and the removal of trade barriers also increased imports from both Canada and Mexico. Increase in import drove away infant industries as well as manufacturing and production industries which were major employment agencies in the country. This led to an increase in the unemployment levels which have further led to a decrease in the wage rate of the American workers. Some of the manufacturers relocated their industries to Mexico and some to Canada where labor was much cheaper and readily available since during that time labor in United States was more costly as compared to that of the other two countries.
This has increased the need for imported goods and also a decrease in the employment level. Increase in importation is a major contributor to the trade deficits the country has with Canada and Mexico thus affecting the overall economy of the country (Scott, R. para 5). Trade among these three nations is usually influenced by the value of the United States dollar since transactions are carried out in terms of U S dollars. An increase in the value of dollar against the currencies of Mexico and Canada would lead to an increase in the value of imports from United States as well as between Mexico and Canada.
In the recent past, the value of the U S dollar has been decreasing thus increasing the trade between Canada and Mexico. Devaluation of the United States dollar would mean spending less for the same amount of goods (Baek & Koo, para 3). Conclusion NAFTA as mentioned above was founded with an aim to increase the productivity and growth of the three member states. It also sought to create employment opportunities and development of the states. To some extent, these objectives have been met. It led to increased export in the three states thus raising their gross national income.
However, the negative effects should not be overlooked and should be acted upon to rectify them. NAFTA has led to an increase in the unemployment level in the United States and also it has negative impact on the manufacturing sectors as well as the labor sector. There is thus dire need for the government to seek a redraft of the document to ensure that it is worker and environmental friendly and also to make sure that all the negative impacts are eliminated. Work cited: Baek Jungho, Mulik Kranti & Koo Won W. : The Role of the U. S. Dollar in International Trade.
Retrieved on 7th April 2009 from, http://www. ag. ndsu. nodak. edu/capts/documents/AGReport585P. pdf Griswold, Dan: NAFTA at 10: An Economic and Foreign Policy Success. Retrieved on 7th April 2009 from, http://www. freetrade. org/node/87. Larsen, Timothy J. & Coe, Michael: Analysis of US-Mexico Agricultural Trade since NAFTA. Retrieved on 7th April 2009 from, http://www. colorado. gov/cs/Satellite? blobcol=urldata&blobheader=application%2Fpdf&blobheadername1=Content-Disposition&blobheadername2=MDT-Type&blobheadervalue1=inline%3B+filename%3D778%2F487%2FNAFTAImpact.
pdf&blobheadervalue2=abinary%3B+charset%3DUTF8&blobkey=id&blobtable=MungoBlobs&blobwhere=1167363980506&ssbinary=true. Scott, Robert E. : NAFTA’s Hidden Costs Trade agreement results in job losses, growing inequality, and wage suppression for the United States. Retrieved on 7th April 2009 from, http://www. ratical. org/co-globalize/NAFTA@7/us. html Scott, Robert E. : The high price of ‘free’ trade: NAFTA’s failure has cost the United States jobs across the nation. 2003. Retrieved on 7th April 2009 from, http://www. epi. org/content. cfm/briefingpapers_bp147.
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