How has the North American free trade Agreement affected Economic Growth for the United States?
Abstract
The purpose of this paper was to research the most current and effective information concerning the North American Free Trade Agreement (NAFTA) and how it affects trade for the United States. The methodology used in the research was based on scholarly reviews and interviews. I will also address how NAFTA was developed, how it has impacted industries within the United States, as well as the current and past challenges it has faced. The paper will also address the relevance of NAFTA, as well as what type of future the United States and other countries can look forward to under the North American Free Trade Agreement.
Table of Contents
TITLE PAGE
ABSTRACT 1
TABLE OF CONTENTS 2
INTRODUCTION 3
THE DEVELOPMENT OF NAFTA 6
HOW HAS NAFTA IMPACTED U.S. INDUSTRIES…………………………………. ……8
CHALLENGES OF NAFTA……………….…………………………………………………11
RESEARCH M ETHODOLOGY………………………………………………………………………………….12
WHAT’S IN THE FUTURE FOR NAFTA …………………………………………………………………13
The Essay on Nafta Trade Agreement
... the U. S. and Mexico The North American Free Trade Agreement, often referred to as NAFTA, is an agreement between the U. S. , ... services more freely between each other. NAFTA had started as an agreement between the United States and Canada, then in 1992, Mexico ... about NAFTA was formed as an offspring of the World Trade Organization (WTO), an organization that aimed at promoting freer trade between ...
CONCLUSION……………………………………………………………………………..…15
REFERENCES ………………………………………………………………………………………………………….16
Introduction
Free trade and trading agreements continue among nations with open borders. Thanks to the Nations listed under the North American Free Trade Agreement, global trade has tripled over the past 25 years (Weiss, 422).
Review of current literature in reference to the North American Free Trade Agreement indicates that trade amongst three North American countries involved has been an essential part of a thriving economic system for Canada in Mexico. These three North American countries involved being the United States, Canada and Mexico.
Just recently, Congress added a “Buy American” provision to the $787-billion economic stimulus package. President Obama quickly declared that this provision would not affect or violate any trade pacts. Canada, which is the United States’ largest trading power, breathed a huge sigh of relief, due to Canada’s financial dependency on trading with the United States. Although technically President Obama upheld his declaration that buying American would not affect or violate any trade pacts, Canada would still later feel a devastating impact of Americans being strongly encouraged to purchase from American manufacturers.
As a trading partner, Mexico has grown in importance. The labor advantage continues to be a strong factor for growth in Mexico, “In addition to considerable wage and differentials, the workforce is young, hungry and eager,” says Craig Griffi, U.S. leader for consumer and industrial products (Selko, 2009).
Much information can be researched and dispersed that explains the advantages of other countries that benefit through trading with the United States under NAFTA. Yet some questions still remain, “Does the United States itself significantly benefit through trade with other countries under NAFTA? Many statistics confirm that the practices under NAFTA do provide significant benefits to the U.S. economy. For example, the value of Mexican goods exported to the United States grew from $39.9 billion in 1993 to $210.8 billion in 2007, an increase of 437 percent. This increase provided to be extremely beneficial to the United States economy. Many industries within the U.S. were able to overwhelmingly profit due to the receipt of products from Mexico that were priced more cheaply than those from other countries in the past (including the U.S.) (Somer, 2006).
The Essay on United States Nafta Mexico Trade
... both the United States and Mexico. NAFTA is a comprehensive, rules-based agreement, that was formed from a 1989 trade agreement between the United States and Canada ... in resources necessary for environmental protection and development. The North American Agreement on Environmental Cooperation (NA AEC) was approved as a ...
Now, on to another question, “Does NAFTA promote economic growth within the United States as we know it does for Mexico?” There are so many advantages for Mexico under NAFTA. One of them being that textile production has now been moved from Asia to Mexico. Author Judi Keesler in 2004 stated in an article that in 1980, 83% of all U.S. textile imports came from Asia. By 1997, Asia accounted for 41 percent of U.S. textile imports as companies switched their source of textiles from Asia to Mexico (Keesler, 2004).
But how did the United States benefit from this switch in textile production? In this particular event there were no known direct negative or positive outcomes for the United States, which is simply a prime example of NAFTA working for Mexico, more so than it worked for the United States. It did however cause a concern that there may be an increase in unfair labor standards. “One of the most drastic and disturbing results of NAFTA has been a boom in the Mexican maquiladora sector. In the U.S. and the developed world, these manufacturing units would deservedly be known as sweatshops” (Hill, 2007).
What other outcomes has NAFTA had upon the United States as well as Mexico and Canada? What has NAFTA meant for American manufacturers? Some Americans believe that NAFTA has caused an ethical dilemma for U.S. manufacturers and American farmers. This paper will make an attempt to respond to these questions in an educated, ethical manner based upon the literature that was researched and will be presented. This paper will also explore corporate social responsibility, and whether or not NAFTA should be held responsible for any negative affects it may have had on the U.S. economy.
The Development of NAFTA
The North American Free Trade Agreement (NAFTA) was created in 1991 under the presidency of George H.W. Bush, later signed into effect under the Clinton administration in 1994. It was an agreement that ratified the original agreement between the United States (U.S.) and Canada. The 1994 agreement tied the North American Countries of Canada, United States and Mexico into a trade agreement that spurred the purchasing power parity of North America into the category of largest block of Gross Domestic Product (GDP).
The Term Paper on Nafta North American Free Trade Agreement
... AMERICAN FREE TRADE AGREEMENT INTRODUCTION In January 1994 the United States, Mexico and Canada entered into the North American Free Trade Agreement (NAFTA) and created the ... prospects for textile and apparel producers in the United States and Canada by improving productivity and concentrating on specialized products. NAFTA has enabled United States and ...
How has the development of the North American Free Trade Agreement (NAFTA) promoted economic growth for U.S. industries by increasing trade between North American countries and spurring competition from foreign resources?
Ethical concerns about corporate social responsibility and NAFTA have presented itself with lots of challenges over the last few decades, because of the economic affects on the United States. Nevertheless, according Rowley and Berman little theoretical attention has been paid to understanding why or why not corporations act in socially responsible ways (Campbell, 2007).
This concern has promoted global competition which causes business to place moral reasoning on the back burner of the business polices.
“There are plenty of examples of firms that, in the pursuit of profit, have exhibited all sorts of socially irresponsible corporate behavior, such as deceiving customers, swindling investors, exploiting and even brutalizing employees, putting consumers at risk, poisoning the environment, cheating the government, and more (Vogel, 1992).” There are many companies such as Union Oil Company of California (Unocal) and Myanmar Oil and Gas Enterprise (MOGE), which utilized the utilitarianism principle; required that immediate and all foreseeable future costs and benefits be the guiding force for its decision to act socially irresponsible.
“However, many corporations do not behave in socially irresponsible ways. In fact, some corporations go to great lengths to do just the opposite, by giving to charities, supporting community activities, treating their workers and customers decently, abiding by the law, and generally maintaining standards of honesty and integrity.” (Campbell, 2007).
According to the scholarly article, “Concepts of fairness in the global trading system”, the global trading system is looked upon under two criteria’s, One the equality of opportunity and two the distributive equity. The author’s concept of moral principles in regards to business was very questionable. Equality of opportunity is believed to be used to hinder economic growth among competing businesses. The value of opportunity is placed on a corrupt governmental system that protects the trade agreement. Distributive equity deals with the moral responsibility that business instill in the mind sets of their employees, however does nothing regarding the moral obligation of equality because it is not economically advantageous.
The Essay on Pre Nafta Mexico Jobs Trade
... have gone from a pre-NAFTA trade surplus of $4. 6 billion with Mexico to a $14. 7 ... Hourly Compensation Cost for Production Workers in Manufacturing Industries, Selected Countries: 1997. ) 5. Bronfenbrenner, Kate. Final ... More than 250 people in five U. S. states were exposed, 130 of them were children ... as finished products. (2) A significant portion of the jobs lost to Mexico due to NAFTA are in ...
How has NAFTA impacted the Economic growth of U.S. Industries?
The North American Free Trade Agreement (NAFTA) was a great milestone in international trade for the United States, Mexico and Canada. It has liberalized trade among three countries which included an impact on their economies as well as U.S. Industries such as manufacturing, textile and agriculture. When the North American Free Trade Agreement (NAFTA) went into effect in 1994, it brought many fears that one consequence would be large job losses in the U.S. textile industry as companies moved production from the United States to Mexico. Protestors of NAFTA argued diligently, however unsuccessfully, that the treaty should not be adopted because of the negative impact it would have on employment in the United States, particularly in industries. According to an online article, between years 1994 through 1997, about 149,000 U.S. apparel workers lost their jobs, over 15 percent of all employment in the textile industry. Much of this job loss has occurred because producers have moved production to Mexico. Several companies’ plant closures were due to cheaper plants abroad, particularly in Mexico.
Additionally, NAFTA has also resulted in textile production being moved from Asia to Mexico. Judi Keesler (2004) stated in her article that in 1980, 83 percent of all US textile imports came from Asia. By 1997, Asia accounted for 41 percent of US textile imports as companies switched their source of textiles from Asia to Mexico, similar movement from U.S. to Mexico (Keesler, 2004).
The third most common impact listed in reference to NAFTA is worker displacement due to production relocation offshore, which is the principal contributory factor to job loss in the apparel industry. An example of this trend is the U.S. clothing retailer The Limited Inc., which in 1997 switched its source for textile products from Sri Lanka to Mexico. According to a spokesman for The Limited, although wages in Mexico are three time the $60 per month that apparel workers make in Sri Lanka, it’s cheaper and faster to move goods from Mexico to the United States than from Sri Lanka. Under NAFTA there are no tariffs on imports from Mexico, but there is a 19 percent tariff levied on textile imports from Sri Lanka. When all these factors are considered, it becomes cheaper to produce textiles in Mexico than Sri Lanka. Thus, as a result of NAFTA, production has been shifted to a lower external cost source (Keesler, 2004).
The Term Paper on Nafta And Mexico Free Trade
... year and a half of NAFTA saw the U.S. trade deficit with Mexico grow by $4 billion ... be viable than by designing your our products using your own technology. As President George ... higher" (180). Beneria goes on the state: From labor's perspective, decentralized production under the ... are another Mexican industry bringing factories and jobs back from Asia.NAFTA rescued Mexico's outmoded, declining textile ...
Hill (2007) stated in his article that sector, which repeatedly has resulted in a precipitous drop in manufacturing jobs in the U.S. and Mexico as well as a reliable precedence for the weakening of labor standards in much of the third world (Hill, 2007).
Hill’s article mentions that one of the most drastic and disturbing results of NAFTA has been a boom in the Mexican maquiladora sector. In the U.S. and the developed world, these manufacturing units would deservedly be known as sweatshops. The maquiladoras operate within Latin America because of the abundance of cheap labor and the poor conditions being tolerated. Due to the removal of protective tariffs by free trade pacts, raw components are imported to the maquiladoras without being taxed. Additionally, the machinery involved in the maquiladora process is also allowed to enter Mexico tariff-free under NAFTA’s terms. Then, Mexican laborers work to turn the raw goods into finished products, adding value to the goods. The end products are then exported to developed nations, with minimal tax levied that is based only on the value added during production.
The automobile industry has been affected by the impact of the North American Free Trade Act. The history of the U.S. industry reveals that plant locations tend to be selected as a result of production decisions. Auto plants must seek the most profitable locations. According to Kim (2002), the simulation of NAFTA was carried out by lowering the transport markups between Mexico and the U.S. Canada which disturbs the regional ranking of profitability profiles. When regional free-trade bloc is formed, it necessarily alters the competitiveness of the member regions (Kim, 2002).
The Essay on International Trade and Industry
Sample short-answer exam questions – Lecture 3 Globalization All questions must be answered as far as possible in relation to your chosen organization and/or its industry sector as defined in your ‘organization/ industry profile’. These are ‘short-answer questions so think about how much you can write in 15-20 minutes. The marking scheme awards marks for relevance, application, quality and ...
Kim stated that Mexico would e the preferred location for small-car manufacturers which would be a better fit in moving of goods in and out of Mexico. The tariffs in between the U.S. and Canada are already low, in efforts to be consistent with the Auto Pact; NAFTA eliminates Mexico’s automotive decrees that require foreign automakers to maintain a balance of trade and a certain level of local contents. The small-car production will be most profitable in Mexico as the cross-border transport of products will costs less than large production even with the non-tariff barriers from NAFTA.
In addition, research studies have shown significant impact in the U.S. forest products industries. Gan and Ganguli (2003) stated in their article that most studies have focused on the impact of tariff reductions in forest product sectors on forest product trade. These studies uncovered softwood lumber trade between the United States and Canada. These forestry sectoral studies, though providing useful insights into trade policy impacts on selected forest products, did not incorporate the interactions between forest products industries and other economic sectors (Gan & Ganguli, 2003).
The authors stated that these interactions can be significant for two reasons: first, forest product industries extensively interact with other sectors in productions and consumption and second, tariffs and subsidies in forest products trade are relatively small compared to those in other industries particularly agriculture and food (Gan & Ganguli, 2003).
The effects that NAFTA would have on the forest industry would enhance the output of the U.S. lumber and wood products sectors by only a quarter percent; however the output of forest products would increase and boost over five percent in revenues which would be due to the Mexican imports caused by tariff reductions. Along with the economic growth NAFTA has affected the ethical trade of business, which leads to challenges within the political system to provide opportunities for U.S. businesses.
What are the challenges of NAFTA?
According to Adrienne Selko, author of “NAFTA, learning to Love thy Neighbor” of Industry week, trade between the United States and its two closest neighbors has accelerated under NAFTA (Selko, 2009).
A question was asked during the 2008 Presidential campaign, “Is NAFTA working?” Judging by the increased number of goods exported to Canada and Mexico that doubled from $141.9 billion to nearly $385 billion between 1993 and 2007, one would say that it is-being that NAFTA was responsible for 33% of that U.S. trade total. Yet Selko states that there are still some “rough patches” to work out between the partnered trade companies. He is absolutely right.
As always, with every pro, there is usually a con. One of these cons can be identified as the growing number of independent farmers in the United States, Canada and Mexico that have seen agricultural prices plummet, farm incomes collapse, and agricultural subsidy programs dismantled. NAFTA’s rules empowering investors, guaranteeing large corporate traders access rights, and constraining government regulatory power have resulted in a race to the bottom in farm income, wages, and sanitary and environmental standards. (Ambrogi, 2001).
Job loss overall is a sensitive subject whenever NAFTA is mentioned. Gary Hufbauer, senior President at the Peterson Institute for International Economics stated, “A realistic estimate is that around 60,000 jobs are lost a year due to trade with Canada and Mexico, while U.S. exports to NAFTA partners support $70,000 a year (Selko, 2009).
Methodology
An interview was conducted of 20 independent farmers in the Middle Georgia area inquiring as to whether or not their livelihood has been negatively affected in any way by NAFTA. A questionnaire was completed by each participant corresponding to the questions that were asked (see appendix).
Out the 20 people, 7 people stated that their livelihood had been negatively affected, 2 people stated that they were unsure, and 11 people stated that their livelihood had not been affected. Although more farmers that were interviewed stated that their lives had not been negatively affected by NAFTA, were the few that stated that their lives had been negatively affected worth NAFTA’s dismissal? The question that should now be asked at this point is whether or not the unfortunate decline in income for independent farmers worth forfeiting the million dollar exports/imports the United States receives under NAFTA each year? The socially responsible answer under the Utilitarian principle would be “no.” Here’s why:
• The value of Mexican goods exported to the United States grew from $39.9 billion in 1993 to $210.8 billion in 2007, an increase of 437 percent.
• The United States exported $136.5 billion worth of goods to Mexico in 2007, up 242 percent since 1993.
• Between 2007 and 1993, the gross domestic product grew from 46 percent in Mexico to 50 percent in the United States.
• More Investment. The United States is the largest source of foreign direct investment (FDI) in Mexico, accounting for over half of the $19 billion invested there in 2006. In addition, U.S. companies contribute around 50 percent of the investment funds for Mexico’s maquiladoras — factories that assemble products (such as apparel, auto parts and electronic goods) from imported U. S. components for export back to the United States. These firms account for almost half of Mexican exports and over $41 billion in annual sales (Somer, 2006).
With benefits such as these, it can be safe to assume that job loss is inevitable, yet overall the benefits under the NAFTA are well worth a slight decline in employment and the loss of a few governmental programs.
What’s in the future for NAFTA?
The future of NAFTA is not the most stable one. There is extreme skepticism that the proposed superhighway between Arizona, Mexico, and Canada will actually be built. The overall assumption is that many U.S. and Mexican jobs will end up being lost to China. The reason for this is that with so many places being linked, the trade route will become an open corridor. They believe this would make it easier for more Chinese goods to get into North America, which will cause an increased number of job losses to Asia. The benefit of the open corridor will be the increase in trade and tourism. Mexico and Canada are the state’s top trading and tourism partners (Sunnucks, 2006).
The superhighway, Canamex, has been in the works since 1995. There has been a lack of funds and progress on the project for such a long time that many believe it has been put off too long to actually work. Some states have put forth an effort to plan and improve highways that will be linked to the trade route but there has been no major production on the project to make a difference. There are also concerns about the lack of labor and environmental standards in Latin American and Asian markets (Sunnucks, 2006).
An economist with the U.S. Business and Industry Council believes that Canamex will not help U.S. / Mexican economic growth, but will result in more Chinese exports to North America.
Many economists are opposed to free trade links and believe they will prove to cause more harm than help. The Mexican industry has already taken a beating to Chinese competition and will be hurt further by the trade routes. Supporters of the superhighways see the project as being a sure way to improve job growth, business investment, and make trade easier (Sunnucks, 2006).
China has the advantage of low labor cost while North American companies have the advantage of great locations, which makes trade much easier for them to accomplish. The open corridors will provide Mexico and border states such as Arizona with a better means of trade.
Hill (2007) stated in his article that sector, which repeatedly has resulted in a precipitous drop in manufacturing jobs in the U.S. and Mexico as well as a reliable precedence for the weakening of labor standards in much of the third world (Hill, 2007).
Hill’s article mentions that one of the most drastic and disturbing results of NAFTA has been a boom in the Mexican maquiladora sector. In the U.S. and the developed world, these manufacturing units would deservedly be known as sweatshops. The maquiladoras operate within Latin America because of the abundance of cheap labor and the poor conditions being tolerated. Due to the removal of protective tariffs by free trade pacts, raw components are imported to the maquiladoras without being taxed. Additionally, the machinery involved in the maquiladora process is also allowed to enter Mexico tariff-free under NAFTA’s terms. Then, Mexican laborers work to turn the raw goods into finished products, adding value to the goods. The end products are then exported to developed nations, with minimal tax levied that is based only on the value added during production.
Conclusion
NAFTA’s has impacted industries within the United States, with a negative affect. Many Americans have lost jobs, business have outsourced industries to Mexico and Canada for lower wages and higher profits. It was founded that NAFTA affects local agricultural industries due to labor concerns, as well as the current and past challenges it had faced. The future of NAFTA seems to be strong due to globalization of industries because it is able to provide American citizens with the most cost effective items which lead to higher profits for business owners. The research found that the Obama administration is optimistic about the future of NAFTA and will continue to support the agreements under them. The shift of trade from Mexico to Canada is another concern for the U.S. The future of the United States and other countries are looking forward to agreements such as the North American Free Trade Agreement to be competitive in this global world.
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