NAFTA is an agreement that was established in 1994 and one that was muted by three governments which included America, Canada, and Mexico. Its conditions consisted liberalizing and removal of tariff barriers that were hindering cross border trade among them. The main objective of the accord was to integrate Mexico to the more developed economies of Canada and America to help the country develop stronger economic growth so as to provide new job opportunities to its increasing labor force and also to discourage illegal migration from the country. The US and Canada viewed Mexico as a country that will provide new markets for their products and also a place where they could make profitable investments at lower costs thereby improving the competitiveness of Canadian and American companies. However, opponents of NAFTA pointed out that there was a huge wage differential between Mexico and the US whose per capita income was 30% less than that of the US. Ross Perot, a US presidential candidate, argued that liberalizing trade with Mexico will lead to loss of jobs in the US which will “flee” across the border to Mexico. Supporters of the Accord were of the view that it would lead to the creation of thousands of new jobs every year in the US and also modernize the Mexican economy. Two decades later, it is safe to say that the trade agreement between the three countries was the right thing to do considering the benefits it has had on the US economy (McBride and Sergie, 2018).
Many economists largely agree that the accord has had a tremendous effect on the economies of the three countries. NAFTA has sharply increased regional trade which was estimated at about $290 billion in 1993 to a staggering $ 1.1 billion by 2016. Cross border American investments in Mexico from an estimated 15 billion dollars to over 100 billion dollars in that period. However, direct effects of the deal cannot be separated from other factors which have also come into play which include increased trade with other countries, technological advancements, including other factors which had no direct relationship with the agreement. Even though some industries and workers experienced painful disruptions caused by the pact, a majority of them gained because new opportunities and markets were created by the agreement. Because of NAFTA, US trade with its trade partners has increased tremendously, a growth that exceeds, by far, its trade with other countries. Its other NAFTA partners have now become its greatest markets for its exports representing about 33% of its total export volume. The Accord has had a positive impact on the GDP of America adding about $ 80 billion or 0.5% to the US economy. Furthermore, economists estimate tens of millions jobs depend on the trade created by NAFTA (Amadeo, 2019).
Delegate your assignment to our experts and they will do the rest.
Nonetheless, some critics still argue that the agreement caused problems in the American job market because companies transferred their operations to Mexico because of lower operational costs. However, some economists attributed these problems to other factors other than with the agreement. The US economy benefited from the pact because it led to an increase in trade which consequently led to completion, lower prices, and improved quality of goods. A study conducted in 2014 by PIIE indicated that thousands of jobs are lost annually because of NAFTA but were still compensated by other new jobs that emerged as a result of the agreement. In 2016, studies conducted by David Autor and others indicated that China was among the major cause of US job losses than the trade agreement (McBride and Sergie, 2018).
In conclusion, it is true to say that NAFTA has brought more good than harm to the US economy. It has not led to massive job losses but has created new job opportunities markets for the US. The trade agreement was a good policy decision which has been able to improve not only the economy of the US but also of its other trade partners. NAFTA did not, therefore, produce the “giant sucking sound” but brought immeasurable benefits to the US economy.
References
Amadeo, K. (2019). NAFTA Pros and Cons: Why Its Six Advantages Outweigh Its Six Disadvantages . The Balance . Retrieved from: https://www.thebalance.com/nafta-pros-and-cons-3970481
McBride, J. and Sergie, M. (2018). NAFTA Economic Impact. Council on Foreign Relations. Retrieved from: https://www.cfr.org/backgrounder/naftas-economic-impact
