Positive and Negatives of NAFTA

Economic Blocs

What is the basis for support of free trade agreements and what benefits are derived?

The conservative Heritage Foundation takes the position that free trade allows American workers to "specialize in goods and services that they produce more efficiently" than anywhere else in the world; then, those goods can be (and are) exchanged for services and goods "that other countries produce at higher quality and lower cost" (Eiras, 2004). This policy helps America become more "competitive and innovative," Eiras writes; and by being innovative, America then produces new technologies which offer opportunities to produce even more goods and services (p. 1). The benefits for America vis-a-vis free trade agreements include: a) the chance to cure more diseases; b) improved educational facilities and institutions; c) less pollution; d) and greater economic growth and a greater "range of investment opportunities" (Eiras, p. 1).

When there is strong economic growth, which results from free trade arrangements, another result is better jobs that pay more and "higher standards of living," Eiras explains. Moreover, with new technologies, changes take place that serve the citizens well. Two reasons that the Heritage Foundation presents are as follows. ONE, Americans do have a higher standard of living with free trade agreements. When there are no trade barriers, companies that produce goods are apt to face "greater competition from foreign producers," and this situation stimulates American producers to "improve the quality of their production" while at the same time keeping their prices reasonable, to compete globally (Eiras, p. 2).

Meantime, free trade also gives American producers to survey the world for "the least expensive parts" that they need to produce the items they specialize in; and the result of this access to lower expenses (for purchasing parts) is that consumers pay less than they would have to pay if there were no free trade agreements in place (Eiras, p. 2). TWO, since innovation allows progress to take place, and competition is "the best incentive to innovate," therefore that very need to remain competitive through innovation (and to produce products at a lower price) is another good reason why free trade is a positive policy (Eiras, p. 3). A good example of how free trade and competition brings about benefits for consumers is the personal computer industry. In the 1980s, it cost a lot to buy a personal computer and few Americans had them, Eiras explains (p. 3). But due to competition (IBM, Apple, HP and others) the prices came drastically down and by 2002 over 65% of American adults had personal computers; of course, now, smartphones are also computers and cameras and video / still camera tools, and competition between several technology companies brought prices down.

What is the main economic bloc for the United States? Right now the NAFTA trade agreement is the biggest economic bloc for the United States. It is the North American Trade Agreement, and it links Canada, Mexico and the United States, and while the U.S. hopes to extend the bloc into Latin America, and has negotiated with Chile towards that end, right now there are no additional countries involved in NAFTA.

Meanwhile, the U.S. And the European Union (EU) are in talks to create "the world's biggest free trade area" in the world; according to Bruno Waterfield (writing in the Daily Telegraph), the creation of this trading block could be a "game changer" that could help kick-start the struggling economies of some European nations (Waterfield, 2013). That potential block between the U.S. And the EU could generate up to $75 billion within two years for the two trading partners (Waterfield, p. 1).

What are the main advantages that the U.S. has realized from NAFTA? From 1993 to 2003, NAFTA enjoyed 38% economic growth; Canada had 30.9% economic growth and Mexico reported 30% growth. That was in the first ten years of NAFTA (Office of the United States Trade Representative).

There are a number of advantages that have been realized by NAFTA. The elimination of tariffs helps to reduce inflation because the cost of imports is lower, and the small businesses benefit from the reduced cost of trade (Amadeo, 2013). From 1993 to 2009, the trade between Mexico, Canada and the United States increased from $142 billion to $1.6 trillion (Amadeo, p. 1). And as for agricultural exports to Canada and to Mexico from the U.S. farming community, these increased from 22% "of total U.S. farm exports in 1993," to 30% by 2007 (Amadeo, p. 1).

Moreover, NAFTA has created a surplus in financial services and in healthcare, according to Amadeo on page 1 and 2. NAFTA boosted U.S. service exports to Mexico and to Canada from $25 billion in 1993 to $106.8 billion in 2007; the imports of those services into the United States were only $35 billion, hence, a surplus was achieved.

America imported $116.2 billion worth of oil products from Mexico and Canada, mostly as shale oil, Amadeo writes (p. 2). This reduces America's dependence on oil from the Middle East, and from Venezuela.