Positive and Negative Effects on the United States Economy
The North American Free Trade Agreement, widely known as NAFTA, is a trilateral agreement between the governments of the United States, Canada, and Mexico. It is essentially a trade bloc that aims to reduce or get rid of tariffs and other trade barriers between the three countries. NAFTA was the first step taken by legislators and economic experts to unite North and South America into a Hemispheric Trading Zone (O’Connell 217). Since the signing of the agreement on December 17 1992, it has changed the face of the US economy in many ways.
Present facts indicate that the agreement produced mixed results in the US economy, with more positive than negative effects as it has made the US a bigger player in the world economy (Stacy 569). Going into the signing of the agreement, each country has its own role to fulfill to make the agreement beneficial. The reduction of restrictions on trade was expected to boost Mexico’s economic development. This would result in a huge demand by the country to import more products and services from Canada and the United States.
The United States and Canada, on the other hand, was expected to benefit greatly from the inexpensive labor that Mexico offers. Cheap labor is a real need for the industries of the two highly developed nations and the agreement would facilitate the employment of more Mexicans in the other two signatories. The labor though that Mexico offers was expected to increase in cost as development in the country occurs (O’Connell 217). When NAFTA took effect in 1994, critics of the agreement in the US immediately observed that Mexican exports to the country increased even as the US trade surplus illustrated a deficit.
The trade bloc became a huge campaign issue in the 1996 presidential election. The agreement was unpopular and Congress refused to grant President Bill Clinton the right to make the approval process shorter in future international trade deals. In addition, an opinion poll conducted by “Business Week” in 1996 showed that only 26 percent of the Americans believed that their country gained positive results from NAFTA. Interestingly, polls in Canada and Mexico had similar results (Stacy 569).
Before the agreement was signed, NAFTA met fierce opposition in the United States. Initially, politicians and experts who were in favor of NAFTA were more vocal on the issue. Politicians argued that the agreement will provide the nation’s companies access to a developing rich consumer market in Mexico. They also contended that it will optimize trade exchanges with Canada. Another positive effect that policymakers pointed out was the ability of the trade bloc to shield the US economy from external economic shocks such as the Asian financial crisis between 1997 and 1998.
Presidents George HW Bush, Bill Clinton and George W Bush have all stated that they were in favor of NAFTA because of its perceived benefits to the US economy. Clinton even boldly said that NAFTA resulted in the strongest US economy in a generation (Chambers et al. 19). Opponents of the trade bloc became very vocal once its perceived effects were measured. The countered the claim that NAFTA generates fresh opportunities for US exports by pointing to the fact that there resulted a rise in imports after the trade bloc came into effect and the nation’s trade deficit was also growing.
Critics of NAFTA blame all the growth in the US trade deficit to NAFTA, which averaged $16 billion annually. Other opponents stated that data on US exports are misleading because they include products that are produced in other countries but are merely passed to the United States (Chambers et al. 19). Since NAFTA relaxed the trade barriers between the three nations, many experts feared that the advantages of the US economy will surely be lost in the process.
Experts pointed out that the exportation of US technology to Canada and Mexico, particularly autos, auto parts, and electronics, threatened the production bases and job stability in the US. Economist Charles McMillion even asserted that the agreement will soon eliminate the US’ historic comparative advantages through continued disadvantageous free trade. He noted, for instance, that the US paid more for autos and technology than it sold to other countries after the agreement came into effect (Chambers et al. 19).
Opponents of the trade bloc maintained that the increased trade between the three countries resulted in the displacement of manufacturing workers into services and lower-paying jobs. For example, in 1999, 11. 4 million workers or approximately 9 percent of the whole US labor force either secured or lost a job because of trade-related issues (Stacy 569). American transnational corporations and large investors have gained more advantages from NAFTA than small businesses, individual workers, farmers, even the environment.
Despite this however, NAFTA is very important for its improvement of the relationship between North and South America. It integrated the Americas and formed the largest trade bloc in the global economy. Advocates of the agreement contend that without NAFTA, the signatories would be back to their old impractical protectionism and wouldn’t experience the advantages of a large regional market (Stacy 569). Another effect of NAFTA is the increase in cross border traffic.
US border officials now handle more border crossings annually than the combined population of the US, Canada, and Mexico. NAFTA, of course, is note solely responsible for this phenomenon, but it does contribute a lot ever since its enactment in 1994. Thus, NAFTA also has a cultural effect on the institutions, values, and goals of the three participating countries. Increased interactions between the signatories have shaped people’s attitudes as they came into more frequent contact with each other (Stacy 569).
Effects of NAFTA to the United States economy are generally mixed. During its first eight years, the US and Canada experienced manufacturing declines, trade deficits, and job losses in major industries. However, the US also achieved considerable growth and generated more wealth in other fields. While the US attained some advantages because of the trade bloc, Mexico is still the biggest winner among the three. The agreement has pushed it to perform competitively and compete with North American economies.
The United States though, benefits greatly from NAFTA because the creation of a single market for the three participants has made them bigger players in the world economy (Stacy 569). According to Graciela Bensusan, a researcher, the fear that jobs would be transferred from the US and Canada to Mexico due to NAFTA didn’t materialize. Even when recession hit the US economy, only a limited number of jobs were moved to the manufacturing sector of Mexico. The trade bloc has yielded positive trade results, although it has not yet caused substantial benefits for workers.
The wage gap between the United States, Canada, and Mexico has also remained largely unchanged (Chambers et al. 244). Today, the globalization of different cultures and economies cannot be stopped as technology drives production and consumption faster. NAFTA was a huge step toward integrating different economies to produce better results. There are bound to be difficulties in all kinds of integration, whether economic or cultural. The effects of NAFTA to the United States economy illustrate the complexity of economic integration.
However, these difficulties must always be faced, explored, and solved to push the growth of participants and move economic and cultural development forward. As the global economy currently faces many challenges, critics are bound to look back at the effects of NAFTA to the US economy. While it is necessary to point out the negative effects of the agreement, it is wrong to push for its abolishment just to protect the US economy further. The country has hugely benefited from the trade bloc and abolishing it or reducing its power is equal to reverting back to the old custom of protectionism.
The United States, Canada, and Mexico must continue NAFTA and enhance its clauses to fit more with the current economic climate. Relaxed trade must not cease between the three countries though because they need each other to survive in this global world. Works Cited Chambers, Edward J. and Smith, Peter. NAFTA in the new millennium. Edmonton: University of Alberta, 2003. O’Connell, John. The Blackwell encyclopedic dictionary of international management. Hoboken: Wiley-Blackwell, 2009. Stacy, Lee. Mexico and the United States. Tarrytown: Marshall Cavendish, 2002.
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