Question

What are the benefits and disadvantages of North American Free Trade Agreement (NAFTA)?

Answer 1

NAFTA is an agreement between the US, Canada and Mexico, signed in 1994. The agreement has both created jobs and lost some of them. It has also come with other advantages like lower prices along with social ills like acceleration of drug trafficking.

Explanation:

NAFTA is a trade agreement between the countries of Mexico, Canada and the United States of America, entered into in the year 1994. The agreement was created to increase trade activity among these countries through removal of numerous trade tariffs that existed prior to its existence. The agreement has its fair share of benefits / advantages and disadvantages.

Benefits of NAFTA

One of the major benefits that NAFTA has conferred upon the nations involved is the increase in trade volumes. As at 2014, the treaty had increased trade volumes between the three countries to the tune of US$630 billion¹. Secondly, along with the increase in trade volumes, the treaty has also created millions of jobs for people living in those countries. Additionally, the removal of tariffs made imports cheaper and that led to an improvement in the standard of living of people in all the countries involved. The oil imports from Mexico became cheaper and that in turn allowed factories to manufacture products at lower costs and that in translates into lower final prices for consumers.

Disadvantages of NAFTA

On the downside the treaty also cost millions of people their jobs, especially in the United States, when manufacturing firms moved overseas to Mexico where the cost of operation was lower due to the treaty. Additionally, some of the US firms that remained in operation post the agreement, lowered their wages to remain competitive enough. Firms operating in low-cost areas could charge lower prices for their products, and that essentially means that the US firms also had to find ways of cutting production costs to ensure their product prices come down as well. Another major disadvantage is that the agreement that it allowed illegal immigration into the United States and also accelerated drug trafficking all in the guise of trade. The agreement allowed relaxation of trade policies and observation of some border control rules and that is how drugs find their way into the US.