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¶ … economic advantages for the U.S., Mexico, and Canada of signing the North American Free Trade Agreement (NAFTA)?
The most obvious, direct impact of NAFTA upon the three signatory nations is the liberalization of international trade between them all. By doing away with tariffs and other prohibitive trade restrictions, consumers in all three nations can more easily purchase one another's goods at lower prices. Not only was the U.S. able to purchase less expensive goods from Mexico: Mexico likewise experienced an increase in international trade, foreign direct investment, and labor productivity (Iyer 11-12). Canada also saw increased labor productivity and a greater free flow of trade between the two nations but both Mexico and Canada lost jobs in their agricultural sectors while they gained jobs in their manufacturing sectors (Iyer 13). The theory of comparative advantage in trade suggests that when a nation does or makes what it can do 'best,' with maximum profits with minimal expenditures,...
"Since labor and other resources would be reallocated from less productive to more productive sectors, there would also be an overall gain in productivity for all trading partners" (Iyer 9). However, the evidence indicates that these gains were not uniform, nor were they without some costs.
Q2.Has NAFTA created new trade in goods?
NAFTA considerably liberalized and loosened trade in the agricultural sector, particularly between the U.S. And Mexico. "U.S. imports of Mexican fruits and vegetables increased from $1.9 billion in 1993 to $4.8 billion in 2002, while the U.S. exported large quantities of wheat, corn and soybeans to Mexico. To satisfy increasing domestic demand during this period, Mexico allowed imports of corn above the agreed TRQ levels without levying import duties" (Iyer 11). Trade in transport equipment, metal products and food products similarly increased…
Work Cited
Iyer, L. "To trade or not to trade?" HBS Case Study. 17 Nov 2005.
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