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NAFTA - Beneficial or Costly, AP economics
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NAFTA – Beneficial or Costly Aidan Johnson - AP Economics - Period 1 - Oliveto June 5, 2013
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NAFTA – Beneficial or Costly

Aidan Johnson - AP Economics - Period 1 - OlivetoJune 5, 2013

Background• The North American Free Trade Agreement

(NAFTA) went into effect 1994• Free trade agreement between the U.S.,

Canada, and Mexico• Signed by Bill Clinton, though negotiated

prior• Purpose:

• Remove trade barriers to increase flow of capital, and goods and services• Protective tariffs - a tax on imports• Protective quotas - a limit on imports• Gives the exports an advantage

• Fair competition• Means to resolve trade disputes• Enforce intellectual property rights

Office of the United States Trade Representative

Background

• NAFTA created free trade zone• As of 2008, all tariffs between U.S., Canada, and Mexico

eliminated

• Even today, it is still controversial• Polarized debate• Pro Nafta – benefited North America

• Mostly conservatives (conservative Republicans and Democrats)

• Anti Nafta – harmed North America• Mostly progressives

• Some arguments completely contradict its opposing arguments and vice-versa

Benefits• NAFTA has helped all three nations economies as it was

intended• Decreased tariffs

• Increased competition and efficiency

• Increased exports and imports

• Increased growth

Tariffs• NAFTA over eliminated 9,000

tariffs• Cutting tariffs boosts trade• Increases efficiency through

competition• Consumers gain more

because of comparative advantage

• Cutting tariffs makes imports less expensive• More people will buy because

comparative advantage • Exists if the opportunity costs

for producing the good or service is lower for another producer

The Heritage Foundation - Riley

Tariffs

• Tariffs make it difficult for poorer nations to enter global market• Gives wealthier countries unequal advantage• Opens up economies for foreign investment

• NAFTA gives foreign investors equal legal rights• Since NAFTA, U.S. investment in Canada and Mexico increased• Foreign direct investment (FDI) needed for economic growth

• With U.S. companies investing Mexico, U.S. production increases• Less cost in Mexico• More efficient production• Jobs for the Mexican people• Wages have increased for Mexican workers

Trade• Trade between the countries

has vastly increased• Trade between NAFTA

quadrupled• $297 billion in 1993 to $1.6

trillion in 2009

• Exports from the U.S. to Canada and Mexico increased

• $142 billion to $452 billion in 2007

• Exports from Canada and Mexico to the U.S. increased

• $151 billion to $568 billion in 2007

• Agriculture exports to Canada and Mexico increased

NCPA - Sommer

The Consumer• Prices lower

• Without tariffs, prices for goods are lower• More efficient and more gains from trade

• Higher wages in U.S.• 1993-2007: real wages rose 1.5%

annually• 1979-1993: rose 0.7% annually

• Jobs were not lost• 1994-2007: average unemployment rate

5.1%• 1980-1993: 7.1%

• Environmental amendments included

Prentice Hall

Costs• NAFTA has not helped the economies of all three nations

as it was said it would and has hurt all three nations• Cost jobs and lower wages

• Bad for environment and well being

• Helps big business and hurts the little guy

• Hurt all three nations

Cost Jobs• With cheaper costs in Mexico,

manufacturing jobs were lost• 3.1 million U.S. manufacturing jobs lost since

1994

• Factories closed as they moved to Mexico• Wages in Mexico are 13% of wages in the U.S.

• Taking in account the jobs created by NAFTA, the Economic Policy Institute reports that 682,900 U.S. jobs were lost

• U.S. manufacturing jobs accounted for 60.8% of the jobs

• 116,400 jobs lost between 2007-2010 because of trade deficit created by NAFTA

The New York Times - Malkin

The Economic Policy Institute Report

The Huffington Post - Strachan

Wages & Trade Deficit• Wages in U.S. and Mexico did

not change• Wages in Mexico low because more

supply of labor than demanded and government policies• With low wages, Mexicans cannot

purchase as much• Wages for U.S. workers have not

changed• Workers fear outsourcing• Closing the factory used as threat

leading to lower wages

• U.S. trade deficit increased with Canada and Mexico• $70 billion deficit with Mexico

The New York Times - Malkin

Mexico’s woes• U.S. and Canadian agribusiness subsidized giving

them advantage against small Mexican producers• 2/3 of the 12 million illegal immigrants since 1995 from rural Mexico• Pushed Mexican farmers off land by big corporations

• Mexican farmers left vulnerable• Mexico had 14 years to establish subsidies for their farmers but did

not• Reform needed but not delivered Mexican government• Large corporations drove out small farmers because more efficient

• Economic growth was weak for Mexico standards• 1993-2007: 1.6% per capita

Environment• Needs tougher environmental standards

• Enforcement• Corporations can sue governments for enacting

laws that “violate their NAFTA rights”• Difficult to enforce regulations internationally• Mexican agribusiness uses more fertilizers and

chemicals because competition• Pollution - $36 billion a year

• Rural farmers expanded into land - deforestation• Mexico receives little funding from environmental

institutions created by NAFTA• Cut regulation because fiscal crisis

Gallagher

What Should Be Done?• Almost 20 years after

• All its components in effect for about 4 years• We see NAFTA’s effects• Now what?

• NAFTA has its benefits and costs• All depends on how you weigh them

• Solution:1. Keep NAFTA – it worked2. Reforms and changes at home and abroad3. Expand free trade elsewhere

NAFTA Works - Mostly• Trade has clearly increased in North America• Cutting tariffs is good

• Frees up the flow of goods and services, and capital• Capital investment builds countries and economies

• Prices are lower• Lower production costs enable products to be less expensive

• Markets for goods have grown• With the removal of barriers for the flow of goods, consumers have

greater access• Consumers gain from trade

• Comparative advantage• Specialization

• But…

There Needs to Be Changes• Mexico was unable to really grow because of NAFTA and

its government• The Mexican government needs to create an environment open for

competition - efficient• Monopolies needed to be busted - inefficient• Wages need to be higher for workers• Environmental standards need to be raised• Public investment in Mexico

• Mexico to have fair competition needs to step up a level

• The U.S. and Canada also need to change• Subsidies for agriculture need to end• Subsidies do not make trade free and competitive

Reasoning• Mexico’s economy is growing but at a slow rate

• GDP=C+I+G+X-IM• Consumers must spend – need more income to do so• Foreign investment – increase production• Government must invest to help make Mexico able to compete

effectively• For there to be growth the environment must open for it

• Subsidies are used to give advantage to industry in global trade• Creates inefficiency• Goal is to be efficient• If politically difficult in Canada and U.S., Mexico will have to also

subsidize

Summary• International trade complex• Economic theory is the foundation of economic policy• Application does not always match theory• NAFTA has many trade offs

• Cost-benefit analysis allows us to see if we are maximizing our benefit

• NAFTA has benefited mostly the U.S. and Canada• But it needs to also benefit Mexico

• Changes can be made to make the global economy better

• All that it takes is doing it

Works Cited Aguilar, Julián. "Twenty Years Later, Nafta Remains a Source of Tension." The New York Times. The New York Times Company, 07 Dec. 2012. Web. 26 May 2013. <

http://www.nytimes.com/2012/12/07/us/twenty-years-later-nafta-remains-a-source-of-tension.html>. Amadeo, Kimberly. "Advantages of NAFTA." About.com US Economy. About.com, 2013. Web. 26 May 2013. <http://useconomy.about.com/od/tradepolicy/p/NAFTA_Advantage.htm>. Amadeo, Kimberly. "Disadvantages of NAFTA." About.com US Economy. About.com, 2013. Web. 26 May 2013. <http://useconomy.about.com/od/tradepolicy/p/NAFTA_Problems.htm>. Amadeo, Kimberly. "History of NAFTA." About.com US Economy. About.com, 2013. Web. 26 May 2013. <http://useconomy.about.com/od/tradepolicy/p/NAFTA_History.htm>. Dickerson, Marla. "NAFTA Has Had Its Trade-offs for the U.S." Los Angeles Times. Los Angeles Times, 03 Mar. 2008. Web. 26 May 2013. <

http://articles.latimes.com/2008/mar/03/business/fi-nafta3>. Fletcher, Michael A. "Don't Blame NAFTA for Downturn, Many Economists Say." The Washington Post. The Washington Post, 09 Apr. 2008. Web. 26 May 2013. <

http://articles.washingtonpost.com/2008-04-09/business/36904494_1_trade-deals-nafta-trade-and-investment>. Ford, Andréa. "A Brief History of NAFTA." Time. Time Inc., 30 Dec. 2009. Web. 26 May 2013. <http://www.time.com/time/nation/article/0,8599,1868997,00.html>. Friedman, Thomas L. "How Mexico Got Back in the Game." The New York Times. The New York Times Company, 23 Feb. 2013. Web. 26 May 2013. <

http://www.nytimes.com/2013/02/24/opinion/sunday/friedman-how-mexico-got-back-in-the-game.html>.Gallagher, Kevin P. "Free Trade and the Environment: Mexico, NAFTA, and Beyond."Americas Program. Americas Program of the Interhemispheric Resource Center, 17 Sept. 2004. Web. 31 May 2013. <

http://www.ase.tufts.edu/gdae/Pubs/rp/NAFTAEnviroKGAmerProgSep04.pdf>."Globalization and Environmental Issues." Teaching American History. Metropolitan Omaha Educational Consortium & University of Nebraska at Omaha, n.d. Web. 27 May 2013. <

http://www.tahg.org/module_display.php?mod_id=98>."Is NAFTA Good for Mexico and the United States?" Daniels Ethics Initiative. University of New Mexico, n.d. Web. 26 May 2013. <http://danielsethics.mgt.unm.edu/pdf/NAFTA%20DI.pdf>.Legrain, Philippe. "5 Myths About NAFTA." The Washington Post. The Washington Post, 06 Apr. 2008. Web. 26 May 2013. <

http://articles.washingtonpost.com/2008-04-06/opinions/36888660_1_nafta-mexican-factories-and-offices-global-trade>. Malkin, Elisabeth. "Did Nafta Actually Help Mexico?" The New York Times. The New York Times Company, 10 Dec. 2009. Web. 26 May 2013. <

http://economix.blogs.nytimes.com/2009/12/10/did-nafta-actually-help-mexico/>. Malkin, Elisabeth. "Nafta's Promise, Unfulfilled." The New York Times. The New York Times Company, 24 Mar. 2009. Web. 26 May 2013. <

http://www.nytimes.com/2009/03/24/business/worldbusiness/24peso.html>.Markheim, Daniella. "The Best U.S. Export-Promotion Strategy: Free Trade." The Heritage Foundation. The Heritage Foundation, 7 May 2008. Web. 26 May 2013. <

http://www.heritage.org/research/lecture/the-best-us-export-promotion-strategy-free-trade>."NAFTA (North American Free Trade Agreement)." Global Issues in Context Online Collection. Detroit: Gale, 2013. Global Issues In Context. Web. 26 May 2013. "North American Free Trade Agreement (NAFTA)." Office of the United States Trade Representative. Office of the United States Trade Representative, 2012. Web. 26 May 2013. <

http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta>."North American Free Trade Agreement (NAFTA)." Public Citizen. Public Citizen Inc. and Public Citizen Foundation, n.d. Web. 26 May 2013. <http://www.citizen.org/Page.aspx?pid=531>. Prentice Hall Business Publishing. Tariff Effects with Supply and Demand Graph. Digital image. WSU Tri-Cities. Washington State University, 2002. Web. 27 May 2013. <

www.tricity.wsu.edu/~achaudh/ec101Chp16.ppt>.Riley, Bryan. "Tariff Reform Needed to Boost the U.S. Economy." The Heritage Foundation. The Heritage Foundation, 29 Apr. 2013. Web. 26 May 2013. <

http://www.heritage.org/research/reports/2013/04/tariff-reform-needed-to-boost-the-us-economy>. Sommer, Heidi. "The Economic Benefits of NAFTA to the United States and Mexico." NCPA. National Center for Policy Analysis, 16 June 2008. Web. 26 May 2013. <

http://www.ncpa.org/pub/ba619>. Strachan, Maxwell. "U.S. Economy Lost Nearly 700,000 Jobs Because Of NAFTA, EPI Says." TheHuffingtonPost.com. The Huffington Post, 12 May 2011. Web. 26 May 2013. <

http://www.huffingtonpost.com/2011/05/12/nafta-job-loss-trade-deficit-epi_n_859983.html>. "The NAFTA's Impact." North American Free Trade Agreement (NAFTA). Foreign Affairs and International Trade Canada, 2 Jan. 2009. Web. 26 May 2013. <

http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/nafta5_section04.aspx>.Wesley, E., and F. Peterson. "North American Free Trade Agreement." Encyclopedia of Environmental Ethics and Philosophy. Ed. J. Baird Callicott and Robert Frodeman. Vol. 2. Detroit: Macmillan

Reference USA, 2009. 107-108. Gale Virtual Reference Library. Web. 22 May 2013.


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