The costs and benefits of NAFTA on the United States economy

NAFTA

One of the key contentious issues in the recently finished United States presidential elections from members of both parties was that of ending the free trade agreements. Free trade takes into account the lack of restrictions on imports or exports by government administrations. Therefore, there is the free flow of goods and services to and from nations based on the market demand and supply. In the contemporary, the United States has effective free trade agreements with twenty nations. One of the major key trade agreements for the nation is the North American Free Trade Agreement, which delineates the guiding principles for transnational trade with Mexico and Canada (International Trade Administration). The purpose of this paper is to discuss the costs and benefits of free trade and the impact on the United States if the deliberations on ending free trade agreements come to fruition.

Creative Destruction and Impact on the U.S. Economy

Creative destruction takes into account the continuous product and process invention mechanism by which new production divisions supplant and substitute obsolete products. This practice of reformation infiltrates key features of macroeconomic performance, and not just growth in the long-run but also economic changes, structural adjustment, and the operating of factor markets (Hart 22). The benefits of NAFTA are that consumers and companies in the United States have greater mobility, a more extensive variety of choices and a better opportunity to go after their own specific vision of happiness. For instance, businesses are able to move where they can obtain cheaper labor, lower tax rates and greater innovation. In addition, investors are able to capitalize their funds in places with greater returns and in expanses that have less arduous regulations. All in all, consumers and businesses are able to attain all of these through creative destruction based on technology and innovation (Boston Fed 5).

However, creative destruction does have its shortcomings. One of the downsides of creative destruction is the aspect of inequality. In particular, creative destruction does not generate results that are consistently constructive or have benefits that are shared comprehensively. Lives end up becoming disordered and livelihoods are lost, particularly in older industries and towns, where individuals experience a greater proportion of destruction and prized little creation (Boston Fed 5). For instance, with respect to NAFTA, when companies relocate to Mexico, several Americans lose their jobs and may suffer dislocation and disruption as an outcome (Lindsey).

Globalization's Effect on U.S. Manufacturing

Globalization, combined with new technologies, is having a profound influence on the manufacturing industry of the nation. The assimilation of customary manufacturing, new technologies, global markets, and value-added supply chain management has transformed American manufacturing. Companies are able to have accessibility to more markets and a wider consumer base, owing to globalization. In addition, this has generated more sophisticated competencies and skills that have only advanced the industry (Manzella). Globalization signifies free trade which stimulates global economic growth, generates jobs, makes corporations more competitive, and lowers prices for consumers. Moreover, it also provides deprived nations, through infusions of foreign capital and technology, with the opportunity to develop economically, and by disseminating wealth, generates the state of affairs in which democracy and respect for human rights may succeed (Collins).

On the downside, globalization has had a negative impact on manufacturing industries in the United States. This encompasses the advanced level of technology that has come along with it. Technology has displaced a great deal of jobs. Automated technology has given rise to fewer workers having to complete tasks. The issue is that jobs are transferred to lower cost nations. For instance, through NAFTA, America lost over a million jobs to Mexico, owing to cheaper labor. In turn, Americans face pay-cut demands from employers who portent to export jobs. In addition, major multi-national companies have the capacity to exploit tax havens in other nations to evade paying taxes (Collins).

Trade Adjustment Assistance and Job Restructuring/Retraining in the U.S.

The Trade Adjustment Assistance (TAA) Program, established under NAFTA, is a national program that offers a pathway for employment growth and prospect through aid to U.S. workforces who have lost their jobs on account of foreign trade. The program endeavors to provide these trade-inflicted employees with chances to acquire the abilities, resources, and support they require to become reemployed (U.S. Department of Labor). On the other hand, this does have its shortcomings. According to Vijaya (3), by stimulating free trade policies as a vehicle of economic growth, U.S. legislators in both political parties have time and again recognized that trade-related structural modifications in the economy place a substantial encumbrance on workers. One of the most significant reasons to go against trade adjustment assistance is that in reality it implies that damage is undertaken when trade is liberalized. For the most part, employees that experience job losses owing to trade do so because of a policy decision by government (James).

Impact of Ending Free Trade Agreements on the United States

Ending free trade agreements will have a major impact on the United States. There will be both positive and negative influences on the nation if these deliberations come to fruition. One of the key influences encompasses creative destruction. By closing its borders, the nation will remain stagnant. The major purpose of trade is wealth creation, in the sense that it augments the productivity of businesses in the United States. By ending free trade agreements, the nation will not be able to expand prospects for Americans. In addition, the process of creative destruction is an integral part of economic growth and fluctuations. Impediments to this practice can have austere short-run and long-run macroeconomic consequences (Caballero 7). Technology is advancing and will not cease. Therefore, the United States has no other option but to continue inventing and embracing technology. This will not be possible by ending free trade agreements and closing its doors.

Another impact of ending free trade agreements encompasses the negativity it will have on both importation and exportation within the nation. From the time the U.S. joined NAFTA, the exports of the United States immensely increased from $142 billion to $517 billion, which is more than 30% of the nation's exports. On the other hand, imports from Canada and Mexico increased from $151 billion to $590 billion, representing 26% of the U.S. imports. This also gave rise to growth and investment of small businesses and decreased the cost of commerce. Ending free trade agreements will have a major detrimental impact on trading in the United States as these progressive imports and exports were boosted by getting rid of all tariffs between the United States, Mexico and Canada (The Balance).

However, ending free trade agreements will also have a positive impact. To begin with, Americans will stop losing jobs to cheaper markets such as Mexico. Therefore, there will be an expected upturn in the rate of employment. In addition, companies will experience some form of protectionism. This will enable small businesses to grow and flourish devoid of the harsh market conditions experienced as a result of globalization. In addition, the closing of borders will diminish the movements of illicit goods and undocumented immigrants. This will help solve the problems of drug trafficking and increasing number of immigrants in the country (Trinkunas).