The objective of this essay is threefold. First, the paper describes the goals and objectives of NAFTA, the North American Free Trade Agreement. Second, the author reviews the advantages and disadvantages of the free trade agreement to each of the countries involved. Lastly, based on the contemporary economic politics of the US, the paper gives the projected further of NAFTA. After fulfilling the three objectives, the paper finds that based on its goals at inception, NAFTA has brought significant economic development for the three nations despite failing to modernize the Mexican economy as it was intended at its birth. The effects of the trade agreement on job creation, however, is enough cause for worry for the two developed nations, which is why its future is not bright, especially with most of its free trade policies.
Goals of NAFTA
Founded in 1994, the North American Free Trade Agreement, NAFTA, is a trade agreement that was negotiated by three North American nations, the US, Canada, and Mexico. The terms of the agreement, which were implemented in a gradual process from its formation through 2008, sought to eliminate most of the trade tariffs on products that were traded among the three nations ( McBride & Sergie, 2018 ). The liberalization of trade in automobile manufacturing, textiles, and agriculture was the primary focus. Furthermore, the deal sought to ensure the protection of intellectual property, the creation of dispute resolution methods, and the implementation of environmental and labor safeguards. The deal reshaped the economic relations of the three countries, which drove unprecedented integration between the developed economies of the US and Canada with Mexico’s developing economy.
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At the time of its inception, extant literature on the trade agreement reports that NAFTA sought to accomplish seven objectives. Precisely, according to McBride and Sergie (2018), the first and primary objective of the trade agreement was to grant its signatories most favored status—an economic position in which specific nations enjoy the best terms in international trade from their trading partners, which for this case concerned reduced barriers to trade. The second goal of the trade agreement was facilitate cross-border movement of products and services through the elimination of barriers to trade. The agreement further sought to promote fair competition among its member countries, bolster the investment opportunities, and offer enforcement and protection of intellectual property rights. The sixth objective of NAFTA was to develop procedures that would be applied in conflict resolution among member states in matters trading activities. Lastly, NAFTA sought to set a framework for further multilateral, regional, and trilateral cooperation that would expand the benefits of the trade agreement.
The Advantages and Disadvantages of NAFTA to its Member Countries
The most critical objective of NAFTA was to reduce the barriers to trade among the three North American countries. Since its inception, the trade agreement has been striving to make trade as liberal as possible, which explains the finding that its primary advantage to the member states is an increment in the volume of international trade. According to Villarreal and Fergusson (2017), regional grew rapidly over the past treaty’s first two decades, and the cited author suggests that the volume of trade in the region rose from an approximated $290 to over $1.1 trillion between 1993 and 2016 respectively. Furthermore NAFTA bolstered the volume of cross-border investments. Precisely, according to the latter cited study, the foreign direct investment of the US in Mexico grew to more than $100 billion up from only $15 billion over the same period.
On specific countries, it is imperative noting that the NAFTA treaty has more than tripled the volume of trade between the US and its North American neighbors, which has grown at a pace that is faster than the trade between the US and the rest of the world. Today, Mexico and Canada are two of the largest US export destinations, and they account for more than one third of the entire export volume. Consequently, most economists have unanimously argued that the deal contributed modestly, but positively to the GDP, Gross Domestic Product, of the US of less than 0.5% (Villarreal & Fergusson, 2017). The benefits of trade agreements often go unnoticed since while the costs are mostly concentrated in some industries, including automobile manufacturing, the upsides of deals such as NAFTA are widely distributed across the society. Precisely, proponents of the treaty posit that NAFTA has resulted in the creation of an estimated fourteen million jobs (Hills, 2013).
Much as the deal has resulted in the identified benefits, some people argue that NAFTA is to blame for wage stagnation and job loss in the US, which are driven by a widening trade deficit, firms moving to Mexico for low cost production, and low-wage competition. Precisely, it is pointed out in reviewed literature on the topic that the trade balance between the US and Mexico rose from a surplus of $1.7 billion for the US to a deficit of $54 billion between 1993 and 2014 (Schwartz, 2016). As the latter cited literature suggests, the surge in the volume of imports to the US resulted in the loss of close to 600000 US jobs during the same period although it is widely acknowledged that the effects would still have been felt even if NAFTA had not been in existence.
A significant proportion of labor leaders and workers point at the figures cited previously to blame trade, which includes NAFTA the fall in the volume of manufacturing jobs in the US. Precisely, it is reported that the auto sector of the US lost close to 350,000 jobs from 1994, which accounts for a third of the sector, while Mexico gained significantly, employing 550,000 new employees in the industry compared to only 120,000 before the pact was signed (Moran, Cimino-Isaacs, & Hufbauer, 2014).
The Future of NAFTA
Notably, NAFTA has continued being a perennial target in matters cross-border movement of products and services in a free trade environment. The current President regime considers that the trade agreement has undermined the US manufacturing and job creation, which is why it considered it worthwhile striking a deal with the two other nations that would update the terms and conditions of the free trade agreement. Judging from the reviewed terms of the trade agreement, it is projected that NAFTA will lose most of the free trade agreements that had initially been negotiated among the three countries because of the perception that the deal has been benefiting some nations at the expense of others.
Conclusion
The findings of this paper suggest the benefits and drawbacks of outsourcing and offshoring in globalization. Precisely, it is found that free trade agreements are likely to benefit one economy at the expense of the others in the deal, especially when the countries in agreement have huge differences in their economic potential. In this case, businesses will always tend to migrate to nations with greater production advantage—the less developed economies—to tap on the cheaper labor and inputs than they would gain in their mother nations. While outsourcing and offshoring, countries with less production advantages for businesses are likely to experience a suppressed economic performance.
References
Hills, C. (2013). NAFTA's Economic Upsides. Foreign Affairs . Retrieved from https://www.foreignaffairs.com/articles/canada/2013-12-06/naftas-economic-upsides
McBride, J., & Sergie, M. (2018). NAFTA’s Economic Impact . Council on Foreign Relations . Retrieved 25 February 2019, from https://www.cfr.org/backgrounder/naftas-economic-impact
Moran, T., Cimino-Isaacs, C., & Hufbauer, G. C. (2014). NAFTA at 20: Misleading Charges and Positive Achievements . PIIE . Retrieved 25 February 2019, from https://piie.com/publications/policy-briefs/nafta-20-misleading-charges-and-positive-achievements
Schwartz, D. (2016). Carrier Workers See Costs, Not Benefits, of Global Trade . Nytimes.com . Retrieved 25 February 2019, from https://www.nytimes.com/2016/03/20/business/economy/carrier-workers-see-costs-not-benefits-of-global-trade.html?_r=1
Villarreal, M. A., & Fergussion, I. F. (2017). The North American Free Trade Agreement (NAFTA). Retrieved February 25, 2019 from https://fas.org/sgp/crs/row/R42965.pdf
