Question

President Trump wants to renegotiate The North American Free Trade Agreement (NAFTA).  

1. What do you see as short-term and long-term trade effects?
2. How will renegotiation of NAFTA impact the United States balance of trade and trade deficit.

Answer 1

Answer:

President Trump wants to renegotiate The North American Free Trade Agreement (NAFTA):

Explanation:

"No longer are we going to allow other countries to break the rules, to steal our jobs and drain our wealth,"

Trump said:

• clothing business depended on the work of low-wage workers living overseas
• NAFTA has had a mixed impact in Mexico. It gave a major boost to Mexican farm exports, auto-manufacturing jobs, productivity and consumer prices.
• American manufacturers depend heavily on a global supply chain, especially from Canada, China and Mexico, which leaves them vulnerable in a trade war.

Short-term and Long-term trade effects are:

EFFECTS OF TRADE:

the deal had a modest but positive impact on U.S. GDP of less than 0.5 percent, or a total addition of up to $80 billion dollars to the U.S. economy upon full implementation, or several billion dollars of added growth per year.

Short term effects:

* political themes of fairness and doing things for the good of all, popular in many Spanish speaking countries, including Mexico, will get a LOT more airtime from politicians, especially in areas with a large number of Latinos.

* schools will hire more teacher who can help Spanish speaking kids learn English.

* short term, there may be some employment displacement as new workers often work for less.

Explanation:

In the short run, there will be sticky price due to menu cost and sticky wages, causing the firms unable to change the supply in response to the demand.

It means that in the short run, firms will be operating as they have done.

Afterwards there will be change in supply of goods, change in movement of labor and change in price & wages

Long term effects:

* we will all enjoy more spicy foods.

* some Spanish words will become commonplace among English speakers

* long term economic growth as new consumers purchase products

* all those newly educated kids from parents who are risk takers will open businesses and become community leaders, making America much stronger.

Explanation:

In the long run. It will also cause an exit or entry of firms from or in the market.

It will cause changed level of supply and corresponding changes in quantity exported and imported in the long run, depending upon the new terms and conditions of the NAFTA.

In long run, it may create new jobs in the USA, some help to the local agricultural producers in the USA and relatively less export of goods to the country of Mexico or Canada in the long run.

Renegotiation of NAFTA impact the United States balance of trade and trade deficit as follows:

NAFTA is the agreement among the USA, Canada and Mexico to facilitate the free trade.

The renegotiation of the NAFTA, will cause reorganization of terms and conditions of NAFTA.

Concerns About Unbalanced Trade:

• prompted concerns about lost jobs, especially in manufacturing sector, and the rising trade deficit. In recent years, the imbalance has become higher with Mexico.
• Anything manufactured in the United States, parts and pieces are collected from around the world. The American auto industry is the most reliant on imports, with most coming from Japan, China, Canada, Mexico and Germany.
• North American Free Trade Agreement's impact on United States employment
• It will reduce the U.S. trade deficit with Mexico
• If freed from NAFTA, the Trump administration could raise tariffs on Mexican imports, but under WTO rules, it would have to raise them equally on imports from all its other non- FTA trading partners.

Conclusion:

So “all our biggest competitors will have access to Canada and Mexico, and we won’t".

National Trade Council president Rufus Yerxa said.

“This is more the U.S. withdrawing from the trend in the world than the U.S. joining the trend in the world.”