And Then Came NAFTA… – Economics Essay
The goal of most businesses in the world is to make money. To make money, businesses target groups or markets of individuals to sell their goods and services to. Since the dawn of time, cultures have ventured out to trade with other cultures that have new and better
goods. With the great advances in shipping, technology
and communication that the 21st century has seen, it is more important then ever for business and countries to look to other nations for partnership in trading and bartering. This has many advantages to countries and individuals. First, it brings down the price of goods by allowing items not easily or cheaply produced in one part of the world to be supplied by parts of the world where they are easily produced. Bartering with other countries also increases the target market for your products 10 fold. The more people introduced to a new item the more sales it will generate.
Regional trade blocs are intergovernmental associations that manage and promote trade activities for specific regions of the world.(ucatlas.ucsc.edu) One of the largest trade blocs in the world in NAFTA, or The North American Free Trade Agreement. NAFTA has three main players, the United States of America, Mexico and Canada. The United States has linked with Canada and Mexico to form a free trade zone, the North American Free Trade Agreement, and now hopes to extend that to the rest of Latin America to create a Free Trade Area of the Americas. The US is already negotiating with Chile to join NAFTA, but that has caused controversy with some other South American countries. The NAFTA agreement covers environmental and labor issues as well as trade and investment, but US unions and environmental groups argue that the safeguards are too weak.( revisionguru.co.uk) NAFTA has a trade flow of more then 2,000 billion dollars; 1,017 billion dollars in exporting and 1,277 billion dollars in imports.
NAFTA was introduced on January 1, 1994; came with it was promises of new jobs, a spark in the economies of all three players and a safer and more concrete trade between its partners. NAFTA set up many rules and regulations for its partners that transcend legal, state and local, political and economic. It puts regulations on food safety as well tariff constraints and taxes. In fact, there were many stipulations set up by NAFTA that congress itself denied before the introduction of NAFTA. Mexico was enticed by the overwhelming potential financial gain attributed to doing business with America and Canada. America and Canada were interested in Mexico for cheap labor costs and further markets for goods and services.
One interesting point of the three partners of NAFTA are their huge differences of economic levels. America’s gross national product is $11,750,000,000,000; Canada’s is $1,023,000,000,000; and brining up the rear is Mexico with a GNP of $1,006,000,000,000. One of the selling points to Mexico and America was the potential increase in economic statues of Mexico. As you can see, there is a huge difference between the economic statuses of the three members of NAFTA. This difference in economic stages between the members of NAFTA is one of the many advantages to the members themselves.
There are many advantages to NAFTA for all parties involved. Some of these advantages are as follows:
• For every 1 billion dollars in exports, 40,000 jobs are created in America.
• Opens up the Mexican market
• Fosters economic integration
• Spurs growth, generates jobs and protects the environment
• Allows each country to specialize and become more efficient
• Access to large pool of cheap labor
Some of the disadvantages are as follows.
• Potential losses of jobs
• Environmental problems
• Lower safety and health standards
• Uneven effect on the Texas Vs. other states.
• Adjustment costs for the three partners
• Dynamic effects
• Transferred from the center to the periphery?
• Constraints on development policy
• NAFTA will limit the adoption of certain economic policies
• Hidden costs:
• How to bring together the three economies
Global implications of NAFTA are extremely large. NAFTA in effect, has broken down the trade barrier walls between two world superpowers and have sparked a slow moving economy in Mexico. There has been much talk about adding other countries to NAFTA like Chile and other South American countries, the more countries involved in NAFTA, then arguably it will increase the effectiveness of NAFTA as a whole. For our neighbors across the pond, it makes goods and services from America cheaper. With quantity, prices of our good and services will drop dramatically. It also sparks further trading because of the perceived stability of America’s economic persona. Another impact NAFTA has on the global economy stems from the fact that America has its hands in many pots. On top of trading with its regional partners, America does business with many other countries in many other trade agreements. Another important characteristic of U.S. trade is the wide variation in sectional trade balances by region. While gains from trade liberalization are brought about by increased volumes of imports and exports, these gains can be offset through terms-of-trade effects. (ers.usda)
NAFTA is a powerful trade agreement between three counties governments to allow for businesses to trade easily across boarders. With talk about increasing the members of NAFTA, it will surely gain strength and advantages for its members. As for the global market, as NAFTA grows and America’s economic reputation increases, there will be many benefits for non NAFTA members.