Question

Topic: Production & Global Trade - USA & NAFTA Partners (1-2.5 pages)

1. Detailed analysis: Include detail analysis of NAFTA's impact on US and other members like Canada, Mexico. How NAFTA change the trade volume among members significantly. Some of the disadvantages that occurs because of NAFTA.

· Benefits of the NAFTA for U.S. business

· NAFTA's impact on U.S. jobs

· NAFTA's impact on Canadian and Mexican economy

· Some of the industries that are experiencing significant benefits as a result of the NAFTA

· How does the NAFTA affect the environment and some disadvantages of NAFTA?

Answer 1

Solution:-

1. Benefits of the NAFTA for U.S. business :

·         larger North American market access

·         new export and investment opportunities

·         elimination of tariffs; Canadian and U.S. tariffs were eliminated on January 1, 1998; Mexico will be duty free by the year 2008 for North American made products

·         creation of strong "rules of origin" for North American made products

·         effective procedures to resolve trade disputes

·         establishment of compatible standards of goods between the three countries

·         facilitation of cross-border movement of goods and services

2. The NAFTA has created jobs for American workers by expanding access to U.S. goods and services in the Mexican and Canadian markets. In 1996, jobs supported by the export of U.S. goods to Mexico and Canada increased by an estimated 311,000 to 2.3 million from 1993 (pre-NAFTA). In addition, export-supported jobs, which are in the higher productivity, export-oriented sectors of the economy, pay 13% to 16% more than the average U.S. wage.

3. NAFTA's immediate aim was to increase cross-border commerce in North America, and in that respect it undoubtedly succeeded. By lowering or eliminating tariffs and reducing some nontariff barriers, such as Mexican local-content requirements, NAFTA spurred a surge in trade and investment. Most of the increase came from U.S.-Mexico trade, which totaled $481.5 billion in 2015, and U.S.-Canada trade, which totaled $518.2 billion. Trade between Mexico and Canada, though by far the fastest-growing channel between 1993 and 2015, totaled just $34.3 billion.From 1993 to 2015, the U.S.'s real per-capita gross domestic product (GDP) grew 39.3% to $51,638 (2010 USD). Canada's per-capita GDP grew 40.3% to $50,001, and Mexico's grew 24.1% to $9,511. In other words, Mexico's output per person has grown more slowly than that of Canada or the U.S.

4.Agricultural Trade: The United States is the world's largest and most competitive exporter of agricultural commodities. The NAFTA has reinforced the trend toward greater integration of the North American agricultural marketplace and a more productive and efficient American agricultural sector. U.S. consumers are benefiting from more open access to wider sources of supply. U.S. agricultural exports to North America have grown rapidly since the NAFTA went into effect, and, if recent trends continue, could reach $30 billion per year by 2005--up from $11.6 billion in 1996.

Automotive Industry: Prior to the NAFTA, U.S. motor vehicle exports to Mexico faced restrictive trade balancing and local content requirements, as well as tariffs of 20 %. With the reduction/elimination of these trade barriers, liberalized investment rules and preferential rules of origin, U.S. parts and vehicle manufacturers have become more efficient and competitive in the North American market. In 1996, the U.S. exported 51,000 new cars and 31,500 new trucks to Mexico alone for a value of $1.2 billion.

Textiles and Apparel: The NAFTA has increased economic activity and enhanced export prospects for textile and apparel producers in the United States. To be internationally competitive in the global marketplace, U.S. producers of textiles and apparel have improved their productivity and concentrated on specialized products. The NAFTA has enabled U.S. producers to optimize production and manufacturing investment in North America, resulting in a shift of production from the Far East to North America, strengthening the industry's worldwide position. Textile and apparel trade among the three NAFTA partners has nearly doubled since the NAFTA took effect, increasing from $6.4 billion in 1993 to $12.4 billion in 1996.

5.North American consumers will benefit from various initiatives being undertaken by the NAFTA partners to strengthen and protect the North American environment. The NAFTA Commission for Environmental Cooperation (CEC) has deepened trilateral cooperation on a broad range of environmental issues, including illegal trade in hazardous wastes, endangered wildlife, and the elimination of certain toxic chemicals and pesticides. Through the CEC, Mexico has agreed to join the United States and Canada in banning the pesticides DDT and chlordane, ensuring that these long-lived toxic substances no longer cross our border. The United States and Mexico have also launched a Border XXI program establishing five-year objectives for achieving a clean border environment and a blueprint for meeting these objectives.

Some disadvantages of NAFTA :

·         it led to the loss of 500,000-750,000 U.S. jobs. Most were in the manufacturing industries in California, New York, Michigan, and Texas. Many manufacturing companies moved to Mexico because labor was cheap. The automotive, textile, computer, and electrical appliance industries were impacted the most.

·         job migration suppressed wages. Companies threatened to move to Mexico to keep workers from joining unions. Without the unions, workers could not bargain for better wages. This strategy was so successful that it became standard operating procedure. Between 1993 and 1995, half of all companies used it. By 1999, that rate had grown to 65 percent.

·         NAFTA put Mexican farmers out of business. It allowed U.S. government-subsidized farm products into Mexico. Local farmers could not compete with the subsidized prices. As a result, 1.3 million farmers were put out of business, according to the Economic Policy Institute. It forced unemployed farmers to cross the border illegally to find work. In 1995, there were 2.9 million Mexicans living in the United States illegally. It increased to 4.5 million in 2000, probably due to NAFTA.

·         Unemployed Mexican farmers went to work in substandard conditions in the maquiladora program. Maquiladora is where United States-owned companies employ Mexican workers near the border. They cheaply assemble products for export back into the United States. The program grew to employ 30 percent of Mexico's labor force.

·         U.S. companies degraded the Mexican environment to keep costs low. Agribusiness in Mexico used more fertilizers and other chemicals. The result was $36 billion more per year in pollution. Rural farmers were forced into the marginal land to stay in business. They cut down 630,000 hectares of forests per year. That deforestation contributes to global warming.