Question

Free Trade The Case of NAFTA (USA and Mexico) what would happen if we remove the NAFTA. Explain in details the effect of import and export between the two countries.

Answer 1

Answer- A trade bloc refers to an agreement between countries who agree for a barrier free trade and low or no tariffs. NAFTA is one such trade bloc and it stands for NORTH AMERICAN FREE TRADE ASSOCIATION. US and canada entered into an agreement for barrier free trade in 1st Jan, 1989 while mexixo joined 5 years later. All the participating countries enjot free trade and a greater market place. Almost all the tariffs and restrictions are eliminated between the participating nations with some exception on products of agriculture.

If there were no NAFTA then it would seriously affect the economy of all the three participating nations as well as the people of these nations. Due to NAFTA Canada and Mexico have become the 2nd and 3rd largestest exporters of the USA. And they also import in a significant quantity. It is just because of NAFTA that all these countries enjoy a tariff free market and a larger market place.

Removing the NAFTA the US and even canada will generate jobs for their home people in the manufacturing sector which were till now given to the mixican people because of cheap labor and no rigid regulations regarding labor.

Abolishing NAFTA would not only affect the job structure of the participating nations but it will increase the tariffs and thus exporting goods to other countries will cost much more than it used to cost. This will cost the companies as they won’t be able to find customers for such high price and thus eventually their profits will suffer. Not only exports but imports will also be affected the same way.

If look specifically at the automobile industry then it would seriously get affected as mexico imported car parts to USA and also provides cheap labor. USA also exported apparels to canada in a heavy quantity. All these things will get seriously affected. Since not every crop is produced in the participating countries , so they export what is not produced and import what is produced in excess. So corns of USA and avacadoes amd tamatoes of Mexico and other products would greatly suffer.

It will also lead to destruction of the supply chain which is formed after the coming of NAFTA. This will seriously affect all the nations involved.

US imports nearly 30-40% of it’s medical devices from Mexico due to low or no trade barriers and after the abolishment of NAFTA such medical services would get expensive. This would lead to more expensive medical treatments.