NAFTA Policy Critique
The North American Free Trade Agreement (NAFTA) stands as one of the most consequential trade agreements in the Western Hemisphere. Coming into effect under President Bill Clinton in 1994, NAFTA is a trade agreement signed by three countries: the United States, Canada and Mexico. With the elimination of all tariffs between said countries, the goal of removing significant trade barriers was achieved. With no trade restrictions came greater economic growth, profits, investments, and jobs. NAFTA has fundamentally transformed the economics of all three countries. However, after years of implementation, not everyone agrees that NAFTA is mutually beneficial anymore. President Donald Trump views the agreement as a bad deal for the American people. He argues that Mexico and Canada are to blame for massive job losses and cheap goods that should be manufactured and produced in the United States. Guided by an “America First” policy, President Trump wants factories back on American soil, Americans making American products, and for the United States to no longer be taken advantage of. The president could easily eliminate NAFTA and the consequences would send economic shock waves throughout the world.
Economic Implications and Policy Problems:
The policy problem of the United States withdrawing from NAFTA would have serious economic ramifications. Currently, the United States, Mexico, and Canada allow most goods to enter and exit their respective countries for free. The core of NAFTA is built around the concept of free trade – allowing the exchange of goods with little to no restrictions. Free trade has proven successful; the concept of absolute advantage explains why two individuals (or countries) find trade to be mutually beneficial. For example, the United States shipped more than $11 billion in textile goods to Canada and Mexico last year, while the United States imported 1.6 million vehicles from Mexico (Swanson and Granville, 2017). The economic concept of specialization is evident in NAFTA as different resources are unevenly available and distributed between the three countries. Mexican-grown produce is found readily available throughout the United States, and arguably better in quality especially in the winter months. Some countries have better technology or a better skilled workforce.
The problems of leaving NAFTA would be felt immediately by the American people. As the United States, Canada, and Mexico are all members of the World Trade Organization, pulling out of the pact could result in tariffs returning to their average W.T.O. rates: 3.5%, 4.2%, and 7.1%, respectively (Swanson and Granville, 2017). Prices for common goods, such as fresh fruits and household items, would spike. The average American would pay significant increased costs for apparel, automobiles, medical devices, and more. Additionally, complex supply chains that have been established for years would be disrupted. And it is highly likely that Mexico and Canada would establish their own trade pact or turn to the international community to forge new trade agreements, leaving the United States in the dark and at a disadvantage.
Conclusion and Better Policy Proposal:
I feel that the potential policy decision to leave NAFTA would be detrimental to the economies of the United States, Mexico, and Canada, and would hurt the American people. The United States would find itself at an economic disadvantage and left behind. Under NAFTA, there has been significant economic growth, investments, and jobs. As a result of greater free trade, access to new markets have been opened and have benefited Americans. An American farmer can now sell his produce across borders and compete more. NAFTA has created jobs and boosted the incomes across countries, with greater demand for goods and services.
While NAFTA has transformed the economics of North America, many recognize that it is not perfect. Many farming and manufacturing jobs have moved to Mexico, resulting in job loss for the American people. But NAFTA has also expanded opportunities among different fields, such as technology and science. The Trump administration’s proposal to address NAFTA offers minimal specifics to address these issues. Beyond ensuring labor and environmental standards are met, many argue that the proposal is similar to another controversial trade agreement, the Trans-Pacific Partnership. I believe that fixing NAFTA through policies that address labor rights, increasing wages, and incentivizing companies to build in America is a better path forward.
I believe that NAFTA has successfully transformed the American economy into an economic powerhouse, and has expanded that success to Canada and Mexico. While solutions are needed to make the pact a better deal for the American people, I do not believe withdrawing is the answer. One must recognize that NAFTA has strengthened the economic cooperation between the three countries of North America.
Swanson, A., ; Granville, K. (2017, October 12). What Would Happen if the U.S. Withdrew From Nafta. The New York Times. Retrieved from https://www.nytimes.com/2017/10/12/business/economy/what-would-happen-if-the-us-withdrew-from-nafta.html?rref=collection%2Fsectioncollection%2Fbusiness-economy;action=click;contentCollection=economy®ion=stream;module=stream_unit;version=latest;contentPlacement=32;pgtype=sectionfront