The North American Free Trade Agreement (NAFTA) has been the target of scrutiny in the political scene, largely in part due to Donald Trump’s stance on the matter. Trump has been very critical of the Agreement, stating “NAFTA is the worst trade deal maybe signed anywhere, but certainly ever signed in this country.” To understand why the United States would enter a trade deal that is so apparently bad we need to understand the trade relationship that we had with Canada and Mexico beforehand. The person credited with coming up with the first concept of NAFTA was Ronald Raegan in 1979, who believed that free trade between the three north American countries would mutually benefit everyone involved. The idea was proposed at a time when Mexico had placed high tariffs on goods from the U.S. to protect its national economy. Raegan viewed the potential agreement to expand the consumer base for American-produced goods. But as political agreements typically do, the process of meeting everyone’s needs in the agreement was long and drawn out. The leaders of the three countries didn’t start negotiating until 1991 and the agreement wasn’t finalized and signed until the following year.
When NAFTA was being negotiated the three countries agreed on having seven discreet goals of the agreement that would mutually benefit all countries in one way or another. The first goal of the agreement was to grant each other the most favored nation status. This goal of this was to increase trade between the countries. Most favored nation status encourage trade between the countries and strengthens their trade partnership. The second goal, and one of the most important, is the removal of trade barriers and the facilitate the easy movement of goods across borders. This made it easier for the countries to get raw materials from another country easier and to transport finished goods into another. The third goal of NAFTA was to promote fair competition between the three countries. This is not very specific in its wording and it could be argued that something like American farmers running Mexican corn farmers out of business would be against this goal. But because of the lack of specific wording no direct action has been taken. The fourth goal was to increase investment in companies between the countries. This benefited companies that wanted to expand manufacturing in another country or boost production of resources in another. The fifth goal is to protect and enforce Intellectual property rights across borders. This was included due to the rising number of Mexican knock-off products prior to NAFTA that blatantly copied American patents with no recourse. The sixth goal was to setup framework for the resolution of trade disputes between the countries. This was included to address any changes that came up due to changing economic climates or disagreements between companies or nations. The last goal of NAFTA is to establish framework for future trade agreements between nations, and for the expansion of NAFTA in the future. This goal has put into turmoil due to the U. S’s changing view on the agreement. Although it looks like NAFTA may be on the way out, certainly the framework put into place during the agreement will have some effect on future trade agreements between the United States, Mexico, and Canada.
NAFTA has had a strange effect on the economy. It has both created jobs and also destroyed jobs. Since other countries have looser regulations on how much workers have to be payed and how they have to be treated some factory jobs have been out sourced. The primary country that these jobs have been outsourced to has been Mexico. This creates less jobs in America. NAFTA has also helped America with our debit problem. Americas GDP has grown by .5% because of its trade with Canada. This increase in the GDP can then help more programs to be created and thus lead to more jobs.
There are many pros and cons to both extreme ideologies for trade policies. One side is called Protectionism and the opposite is Free Trade. The benefits of free trade are that companies are pushed to be more competitive in the global market. This policy also allows the government to have a hands-off approach and that they don’t need to spend money on subsidizing local industries. There is also an increase in foreign investments in the local businesses. Lastly, the prices for foreign goods that are not produced in the local economy will decrease due to the decrease in cost for the foreign manufacture. However, Free Trade is not perfect. Some of the issues that come along with this policy are an increase in job outsourcing and local jobs decline. Developing countries have minimal laws for patents or innovations and thus added competition from lower price knock-offs make it hard to compete for local companies. Family farms lose out to large agribusinesses, jobs are then sent to the city which increases unemployment, crime and poverty due to the lack of additional space for the influx of people. The number of women and children working in the foreign poor condition factories increases with the demand for more products. Lastly, there is a degrading of natural recourses from emerging countries that are trying to play a role in the global economy with little environmental protections.
The opposite policy to Free Trade is Protectionism, the benefits of this policy are it is very effective but usually doesn’t last long, it protects farmers and businesses from imported competition. The government also steps in to help subsidize local industries lowing costs for consumers. There also can be imposed import quotas, which limits the number of certain goods that can be shipped in no matter the prices. This policy also allows new industries to develop, gain competitive advantages and hire new local domestic employees. The disadvantages that come along with Protectionism are that it is very destructive when used long term, it weakens domestic industries having limited competition. With the decline in business competitiveness this sends jobs out of the country and causes a lack of spending to improve education to keep up with the cutting-edge business globally. Overall the economic growth dramatically slows and decreases.
The effect on the middle and working classes has been overall positive in nature when taking the full extent of the advantages over the potential loss of some jobs. The overall figures of job losses for the middle class are muddled into the losses due to external factors of automation and the lower demand for many manufactured goods in the US. NAFTA has boosted the United States’ economic growth by as much as 0.5 percent a year and the sectors that benefited the most were agriculture, automobiles, and services. Farm exports from the United States to Canada and Mexico grew 156 percent, compared to a 65 percent increase in farm exports to the rest of the world. Farm exports to Canada and Mexico alone were greater than exports to the next six largest markets combined leading to many middle classes and blue-collar jobs to be created in the process on farms and the services industries. NAFTA’s biggest gain for the middle class in the United States was the elimination of tariffs leading to lower prices on many commodity products we use each day. The freedom to trade with Mexico and Canada has created an open trade of oil which has led the United States to go away from states like Iran and Venezuela which has used oil in a strategic way to hold over other states. Canada and Mexico are friendly states to the US, and it has allowed them to hold these states accountable for unfriendly actions. NAFTA exports created 5 million new U.S. jobs and manufacturers added more than 800,000 jobs between 1993 and 1997 according to the Office of the United States Trade Representative. Manufacturers exported $487 billion in 2014 and it generated $40,000 in export revenue for each factory worker which allows companies to continue to expand.
The affects if NAFTA agreement were to be ended are complicated and would probably be negative by losing the benefits of the agreement. Leaving the agreement would cost the United States 300,000 jobs, cut economic growth, hurt stocks, and cause prices for consumer goods to rise, according to an analysis by Oxford Economics. Without a free trade deal, Canada and Mexico would raise their tariffs on American products more than the United States would charge for Mexican or Canadian goods entering America. Higher tariffs across the region would cause imports and exports to decline and prices to rise for consumers. When a regulation changes, it can be difficult to determine which changes in the economy were directly caused by the regulatory change, and which were caused indirectly or by unrelated factors. The three countries’ economies and populations have become so integrated that disintegration could cause widespread dislocation, unemployment, and a substantial drop in living standards which would cause the immigration problem to be exponentially worse from the potential crash of the Mexican economy. The threat to the United States economy from exiting the agreement would undermine the undermine the relationship between the member states and potentially the position of free trade pushed by capitalism.