The North American Free Trade Agreement (NAFTA).

The free trade that NAFTA has established among the United States, Mexico, and Canada has greatly benefited the U.S. economy. During the years from 1994 to 1997, U.S. trade with Mexico and Canada rose 44 percent. This extensive growth is accredited primarily to the reduction of tariffs. As tariffs were lowered, U.S. goods became cheaper and more competitive in Mexican and Canadian markets, and at this lower price level the quantity demanded of U.S. goods increased. Therefore it becomes less expensive for U.S. firms to supply goods to Canada and Mexico as the supply curve shifts upward. In order to meet the new demand, the firms must hire new workers and increase investment. Between 1994 and 1997, 90 to 160 thousand jobs were created in the U.S. due to the increase of trade with Mexico, and 2.4 million jobs were dependent upon trade with Mexico and Canada (Harbrecht 12). The increase in employment and investment then leads to increased national income. The work of NAFTA has also served to benefit Mexico's economy; in accordance with the United States' economy, Mexico's exports have increased, more than doubling since 1993. The elimination of investment barriers has caused a dramatic rise in foreign investment from four billion in 1993 to ten billion dollars in 1998. NAFTA has enabled Volkswagen, IBM, and the textile industry to seek labor and materials in Mexico. In 1994, a Canada-based entrepreneur invested four million dollars in a metal-stamping plant. The plant is now a major material suppler for Volkswagen although it was originally intended to employ only 130 people. The plant currently employs 1,300 workers and generates 57 million dollars in sales each year (Ebrahim 24). NAFTA has also allowed IBM to create plants in Guadalajara that would otherwise have been built in Asia. As a result, the exports of IBM de Mexico have increased from 350 million to 2 billion dollars in five years and the increased exports have created over 270 jobs (Ebrahim 26). Mexico's textile industry, too, has grown as a result of NAFTA, in 1996 overtaking China to become the largest supplier of textiles to the United States. U.S. mills invest hundreds of millions of dollars to build plants in Mexico as an effect of the reduced tariffs and shipping time. It takes only eighteen hours to ship goods to the Mexican border, while it takes 3 days to China.  

Free trade under NAFTA has also encouraged international specialization, the production of only the goods that a particular economy can produce most efficiently. If the U.S. for example, is efficiently manufacturing cars and Mexico, producing corn, then the U.S. should produce only cars and Mexico, only corn. They are more efficient if they each produce at their highest output, and trade for other goods.  International specialization increases efficiency, lowering consumer prices; consumers no longer have to pay for inefficiently produced goods. (Ball 111)

With all the good effects of NAFTA unfortunately there are some negative effects. One of the greatest impacts on Canadian and United States economies has been loss of jobs and decreased wages. Even though NAFTA has created jobs in the export sector, other production industries have moved their facilities to Mexico where wages and operating costs are lower. Also, wages in Canada and the United States have been held in check and in some cases lowered by the threat of job loss associated with companies moving to Mexico if employees were not willing to work for less benefits or wages. On a whole, it is perceived that workers rights have diminished somewhat because employers now can hire "cheaper labor". In the United States and Canada some wages are stagnating if not declining somewhat. In addition, many border workers on the United States and Mexican sides have lost their employment when factories were relocated to other areas where lower wages helped decrease production costs and increase profits. In essence, the larger corporations and businesses have benefited from NAFTA while smaller companies have been effectively erased from the economic equation. The influx of immigrants from Mexico has increased even though some see this as only temporary but nonetheless has also led to loss of jobs or wages for some Americans because the immigrants will work for minimum wage more readily and generally do not have the "power heavy" unions to protect them. The agricultural sector from all sides has seen various adverse effects of NAFTA. United States and Canadian exports are increasing in the agricultural sector but the value of the exports has decreased due to competition from the "south"(Dentzer 82). Mexican farmers have also seen increased exports but have lost their government subsidies, which effectively negates the gains from increased exports.

There are many benefits of NAFTA, such as increased employment, raised national income, higher productivity, and lower consumer prices. The negative effects are increased pollution, loss of U.S. jobs, and unfair treatment and unsafe conditions for Mexican workers. In our opinion, the benefits definitely outweigh the negative effects in the long run.  Improved economies will raise the standard of living and promote better overall economic growth in all of North America.

Conclusion

NAFTA was designed to foster increased trade and investment among the partners. It also provides for increased ethical standards throughout the agreement.  While there are several possible negative effects of the treaties provisions, we believe that its benefits out weigh the problems. The provisions of NAFTA set the stage for a society where employees, intellectual property and the environment are respected; trade is enhanced; and business profits rise.

References

Ball, D. A., McCulloch, W. H., Jr., Frantz, P. L., Geringer, J. M., & Minor, M. S. (2002). International Business, The Challenge of Global Competition (eighth ed.) New York: McGraw Hill Irwin.

Dentzer, S. (1994, September). The Pain and Gain of Trade. U.S. News & World Report, 80-83.

Ebrahim, M. (1996, June 14). Can Mexico and Big Business USA Buy NAFTA? The Nation, 23-27.

Harbrecht, D. (1998, November 21). What Has NAFTA Wrought? Plenty of Trade. Business Week, 11-14.

Litka, M., & Blodgett, M. (1995). International Dimensions of the Legal Environment of Business (Third ed.) Cincinnati: South-Western College Publishing.

Nelton, S. (1996, April). Promoting a World Ethical Standard. Nation's Business, 84(4), 12.