NAFTA Essay

NAFTA Essay

The North American Free Trade Agreement, otherwise known as NAFTA, was born in the year 1994 between the United States Mexico and Canada. Shortly after the implementation of the trade agreement, the elimination of nontariff restrictions on agricultural trade began.
NAFTA was born with a phase-in approach that would last no less than 15 years. This is phase-in approach was designed in an effort to create an easy conversion to free trade with the nation of Mexico.
Over the years, the economic impact NAFTA has had on the nation of Mexico has been substantial. Since the agreement’s implementation, trade between the U.S. and Mexico has increased more than 300%.
Nonetheless, there does remain a great number of skeptics concerning the “alleged” benefits of the North American Free Trade Agreement. While Mexico exhibits strong growth in exportation under the North American Free Trade Agreement, this growth has not translated into substantial social and economic progress.
NAFTA represents the world’s largest free-trade agreement and has proven to have boosted import and export, as well as an investment among the all nations involved. NAFTA involvement has increased financial flow amid the nations, thereby making North America one of the most economically cohesive regions in the world.
Examination of the critical data published at varying intervals after the implementation of the North American Free Trade Agreement reveals both the positive and negative impacts the agreement has had on the United States economy as well as public relations with the nations of Mexico and Canada. A quantitative review of this statistical information reveals the impressive changes within the trade arena during the 15-year NAFTA phase-in period.

NAFTA – Facing the Effects

The North American Free Trade Agreement, commonly known as NAFTA, came into fruition in the US, Canada, and Mexico in January of 1994. This culmination of nations formed what is now the largest free trade zone in the world. The primary goal of NAFTA is to improve general trade conditions. This improvement comes as a result of tariff reductions, the removal of investment complexities, and the improvement of protection for intellectual property. NAFTA continued to make gradual changes in policy over the last fifteen years in an effort to eliminate tariffs and improve the trade process as expediently as possible.
The history of NAFTA is impressive to say the least; having received the endorsement of President George H.W. Bush, Canadian Prime Minister Brian Mulroney, and Mexican President Salinas in 1992. NAFTA was ratified by the legislature of each three nations in 1993 and was approved by the US House on November 17 of that same year. After its Senate approval on November 20th, NAFTA was signed into law by President Bill Clinton on December 8th. Then, as aforementioned, the plan was entered into force on January 1st of 1994.
Although NAFTA was originated by President George Bush, it became a principal focus for President Clinton and has since been hailed as one of his initial successes. One main reason for this historical consideration is the fact that, between the years of 1994 and 2007, trade between the three participating countries tripled from $297 billion to $930 billion.
Another historical NAFTA fact that often goes overlooked is that the impetus for the agreement originated with President Ronald Reagan. Reagan campaigned on a common market in North America, and then in 1984, Congress approved the Trade and Tariff Act, the significance of which provided the President with the authority to negotiate free trade agreements. Congress was allocated the ability to approve or disapprove motions, but not allowed the ability to change negotiating points. Via the Trade and Tariff act, Reagan and Canadian Prime Minister Mulroney began negotiations for the Canada-U.S. Free Trade Agreement. The agreement was signed in 1988 and implemented in 1989, thus giving birth to the idea for NAFTA.

The Effects of NAFTA on the United States

Critical Examination of Macroeconomics

Prior to congressional approval of the North American Free Trade Agreement, opponents of NAFTA brought to light a great number of concerns. The major focus of oppositional concerns was the United States labor market. Opponents argued that importation from Mexico, as well as increase in capital outflow to Mexico would be detrimental for the United States job market. Additional concerns included the impact that trade liberalization would have on market transitions in the area of Mexican agriculture.
NAFTA opponents voice concern that Mexican antipoverty policies, accounting for nearly 25% of the labor force, were in part supported by various trade restrictions. As such, the anticipation of growth in US grain export to the nation of Mexico increased concerns that the Mexican rural labor market would begin to collapse. This collapse could thereby lead to an influx of unskilled labor workers into the United States.
In rebuttal of the opponent’s arguments, supporters of NAFTA pose the argument that trade liberalization would prove gainful and show marked increase in trade by comparative advantage. Supporters argued that lesser expensive imports from Mexico would be beneficial to United States consumers, as well as producers. They argued that overall, with the growth in the Mexican economy, a demand for more goods and services would mean an expanded market for United States exports.
In addition to this, supporters argued that the trade agreement would show a relatively minimal impact on the US economy. Reasoning behind this belief relies part on the fact that Mexico, at the time of the NAFTA debates, accounted for a very small share of the United States trade and average tariffs therewith. (Bert Fischer, 125 through 144).
Similarly to NAFTA opponents, NAFTA supporters relied heavily on American intelligence point of view to support their beliefs. Mercantilist argument concluded that the exportation of goods to Mexico would be beneficial for the United States because of an increased in job availability.
An economic investigation of the effects of NAFTA on the United States prior to the policy’s induction may have valid contribution to the debate. Prior to 1993, a great number of analyses and models were performed at multiple levels of aggregation. This collection of studies covered a wide range of industries, from agriculture to consumer services under a partial equilibrium framework to a quantity of studies using both multi-country and single calculable general equilibrium models. Pragmatic reviews were performed by, Lustig, Bosworth, and Lawrence, and the United States International Trade Commission in 1992, the United States Department of Labor in 1993, and Francois and Shields in 1994. As a result, the mainstream consensus of studies concluded that the overall effect that NAFTA would have on the United States would be positive but minimal. In turn, these studies indicated that the effects NAFTA would create for Mexico would be positive and very large.
As the settle-in period for NAFTA unfolds, critical comparison must be made between the arguments made during the debate for NAFTA to the actual post-NAFTA datasets. In order to perform any qualified comparison, it must be realized that there are additional macroeconomic factors that can affect the trade industry as well as the job market.
Many people fail to realize that NAFTA has a phase-in period that will last no less than 15 years. As such, it’s safe to say that the full effects of NAFTA are not yet realized. In order to fully examine the effects of NAFTA on United States trade and job market, specific isolation models and experiments are required. In continuation, NAFTA has a major effect on the bilateral trade flow between United States, Mexico, and Canada. Because of NAFTA eliminates tariffs, as well as several non-tariff barriers on trade markets. The effects the agreement has on bilateral trade are major contributors to both the pro and con debate.
In the year 1993, the congressional budget office predicted that the Mexican economy had the potential to increase as much as 12% or more by the end of the NAFTA transition period. To the contrary, the budget office predicted that the United States economy would increase minimally by about 1%. The variance in gains is primarily due to the difference in the nation’s dependence on trade and the varying tariff structure.
At the time that NAFTA was implemented, Mexico accounted for fewer than 10% of the United States export/import. To the contrary, nearly 85% of Mexico’s exports and 70% of the imports were with the U.S. (The Journal of economic perspectives, 126).
As much as NAFTA was expected to have minimal impact on the United States, so too was the expected impact on Canada. Prior to the implementation of NAFTA, Canada had already liberalized trade with the U.S. This trade agreement set forth in 1989 is known as the Canada- U.S. Free Trade Agreement. Prior to the implementation of NAFTA, Canada maintained a relatively low level of trade with Mexico.
As aforementioned, macroeconomics can have a major impact on trade patterns. As such, it can become difficult to isolate specific NAFTA statistics within a dataset. However, based on critical review of the specific data, the United States real gross domestic product (GDP) showed a decline between 1990 and 1991. However, the GDP has shown steady growth from 1992 onward. The steady growth coincides with the implementation of NAFTA, and is known to contribute to an increase in demand for the importation of goods from all regions. (Economic Report of the President, 2000).
Based also on a critical review of specific economic data, research indicates that the strength of the dollar increased in during the late 1990s. This marked increase in strength was measured particularly against Asian currency at the time of the Asian currency crisis. An increase in strength of the US dollar shows dramatic influence on the United States import growth area.
Additionally, reforming global trade shows promising global integration. In 1994, the US approved the Uruguay round agreement as well as the Canada-U.S free trade agreement of 1989. An examination of the United States trade data indicates the effects of these agreements, as well as of the unilateral reduction of Mexican tariffs in the year 1986 to be universally positive.
Since enactment of NAFTA, the United States trade with Mexico has accelerated at an alarming rate. However, research a slight dip in trade production during the time of the Mexican peso crisis. This peso crisis took place in 1995. Because the United States already had a trade agreement with Canada, acceleration in trade with that nation post-NAFTA is palpably minor.
The most feared factor concerning NAFTA during the debates proved to be an inability to compete on the labor level. Many economists believe that a surge of Mexican imports (thanks in part to a low Mexican wage) would prevent United States workers from maintaining a competitive level in terms of job versus earnings. One particularly memorable quote by Ross Perot made reference to a “giant sucking sound south” wherein he painted a picture of mass U.S. jobs migrating south to Mexico.
According to a census of average earnings in 1991, hourly compensation for Mexican manufacturing workers was less than 15% when compared to compensation in the United States. Opponents also indicated concern that with a shift in trade from the United States into Mexico, investments would suffer sharply. A move of investment activity from the United States to Mexico would represent further elimination of United States jobs.
Research done in the early 1990s indicated that many of the fears stated by opponents to NAFTA were overstated. According to the Congressional Budget Office in 1993 the number of United States and wage earners who may be forced to find a new job as a result of NAFTA would be under 500,000. It was further indicated that this number would span at least a decade.
In 1992, the Department of Labor performed a survey of the effects NAFTA would have on employment in the United States and found that variations from one employment sector to another would be relatively small. In fact, the majority of cases revealed that under 2% of current sectors would see a change in employment. This small percentage represents a below average turnover rate when compared to non-NAFTA statistics.
Also in 1992, empirical studies revealed that wage effects as a result of the implementation of NAFTA would be very small. The international Trade Commission survey in 1992 indicated that the cumulative wages earned by United States workers would actually increase. The increase is expected to range between .1% and .3%. Also, in review of a series of surveys by the CBO in 1993, it was indicated that NAFTA would have a very minimal impact on a change in wages.
As aforementioned, both the pro and con side of the debate for NAFTA brought forth mercantilist arguments. However, an interesting factor to note is that arguments from both sides indicate that exportation of goods and services will have positive effects on the United States. It is safe to say that imports are viewed in a negative light due in part to their potential to cause displacement in domestic production.
It has been argued that an agreement with the nation of Mexico should be prearranged to allow for a large portion of Mexican imports to be aimed away from the United States economy. This redirection would thereby protect bilateral trade balance.
As of late, the trade policies within the United States have become a highly sensitive subject. Both industry and labor bring forth legitimate fears concerning the adjustment costs of increasing globalization as well as the need for globalization to be examined within the political arena.
If the world as a whole plans to continue trade liberalization, as has been a goal of United States since the culmination of World War II, it is safe to say that the implementation of the North American Free Trade Agreement offers both positive and negative lessons to be learned. Based on critical review of literature and data as compiled during the initial years following the implementation of NAFTA, it is indicated that most pre- NAFTA predictions by supporters were by and large correct.
The implementation of NAFTA has had a relatively minimal impact on the United States economy and has, in turn, had a large and positive effect on the Mexican economy. It is also argued and so found to be true that the United States job market has been minimally negatively affected by the implementation of NAFTA. However, it is also widely believed that mercantilist arguments attempting to surmise arguments that effects of NAFTA and liberalization as a whole would be negative apply simplistic multipliers and are, in turn, inappropriate.
In comparison to the analysis of both the cost and benefits of trade liberalization, trade agreements can still affect bilateral trade balance. That said; NAFTA has accelerated domestic reform via various policies as a result of the fact that those countries cannot maintain significant pricing differences upon opening borders. When viewed in this faculty, NAFTA has served as a ladder toward bilateral trade liberalization.

NAFTA – Impact on the State of North Carolina

North Carolina has been one of the hardest hit states as a result of the effects of NAFTA on the economy. As of May 2009, North Carolina autoworkers have experienced the brunt of the load. As such, Seattle protests have taken place over the outsourcing of leg looked at plants in Mexico. According to recent studies, the North Carolina automobile industry is losing manufacturing jobs, textile jobs, and several other labor force that are now being outsourced to China. According to a representative from the United States auto workers local 5286, NAFTA and other trade treaties, scratch that NAFTA and other similar trade treaties are creating a negative impact on American labor workers.

The automobile industry is not the only industry in North Carolina that’s experiencing job loss and other workforce related to trauma as a result of the implementation of NAFTA. Other recent case studies indicate that the North Carolina labor force in several areas has been reduced by 90%.
According to a critical review of case studies concerning the state of North Carolina, and the effects of NAFTA they are gone, many labor jobs have been outsourced to Mexico. Mexico. The culmination of NAFTA and other trade agreements have left many jobs outsourced to China as well. Protesters in the state of North Carolina, believes that the United States government is not making the best decisions when it comes to trade within the country. One shocking will by a man named John Fraley who lost his job as a result of the implementation of NAFTA states that “NAFTA has done more damage to the united states of America than any terrorist group ever could.” When we.

Upon taking assessment of some of the most in-depth case with any skin sapping effects of NAFTA on the state of North Carolina, the rural areas of the state have been the most hard-hit. As aforementioned, the quantity of all manufacturing jobs in North Carolina has decreased by a shocking percentage since the implementation of NAFTA. In fact, according to the employee and the security commission of North Carolina, the sum total of all manufacturing jobs lost in the state of North Carolina. Is this the year of 1994 has a total over 100,000. Also it is a date, yet employment rate between the years 2000 and 2001. Double. When North Carolina companies according to studies by the employment security commission, the majority of labor workers who were terminated as a result of outsourcing through NAFTA were some senior employee is, who had obtained very little education.

NAFTA – U.S. Textile Industry
Another area wherein great concern has arisen as a result of the implementation of the North American Free Trade Agreement is the textile industry in the United States. Very according to the Whitehall Textiles Group case study, the passage of NAFTA, prompted most textile companies to migrate operations into the nation of Mexico. It’s a well known corporate fact that Mexico carries an abundance of nonunionized workers.
The case study also revealed that outsourcing manufacturing to Mexico meant higher productivity and lower wages. As such, those outsourcing textiles companies were able to obtain a highly competitive advantage over those that kept production within the U.S.

Many textile producers in the United States maintained a desire to compete using a tag of “American Made”. This tagline was used in the hopes that citizens who opposed NAFTA, as well as those who considered their patronage to be solely American, would be loyal to those specific products. United States producers also maintained that textile production within the United States meant a higher quality product. However, research and statistical data indicated (within the first year of the agreement’s implementation) that the consumer majority was not willing to pay more for specific products simply because they were made inside the United States. It was also noted that, if the quality of the specific product was materially similar to those produced in Mexico, consumers were more than willing to purchase the outsourced product.

The most prominent concerns in regard to have to the textile industry in the United States proved to be the notable concerns over job gain and job loss. Other areas of concern included pricing for consumers, wage standards for labor workers, standard working conditions, and environmental quality. It’s safe to say that each of these concerns have come to light in regards to the implementation of the North American Free Trade Agreement, especially those pertaining to job gain and job loss within the United States textile industry.
The statistics reported by textile companies in the United States proved to be shocking. In the year 1991 in the U.S., there were 1,106,000 textile employees. However, in the year 2000 there were a mere 633,000 employees working in the textiles industry. It’s safe to say that, through the initial years of the NAFTA implementation, the textiles job market has declined sharply.

However, numerically the most dramatic effect NAFTA has had on the textile industry is the increase in Mexican garment production for export. Critical review of textile and apparel’s case studies since the implementation of NAFTA indicate that, until recently, the textile industry has been the largest United States manufacturing sector when it comes to employment.
According to the Autex Research Journal, the most notable impact of NAFTA on the industry’s resource is a drop in employment. In the year 1994, the US textile employment rate has been on a steady decrease.
The following statistical graph reveals a trend throughout the entire textile industry since the implementation of NAFTA. However, it is important to note that a reduction in textile employment is not due solely to the effects of NAFTA on the industry. As such, it worth mentioning that advancements in technology have also significantly impacted the job decline in the textile industry. Aside from that, technological advancement and machinery has increased productivity and efficiency in the industry, but has decreased the need for tangible human interaction in terms of production.

Soras, C.G. (1985-2001). Business and Financial. Textile Industries
In the past two decades, the United States textile industry has begun to focus more readily on research and development as it pertains to the automation of production in an effort to compete with the imports from low-wage nations. The combination of these factors (the implementation of NAFTA and the development of modern technology) has been a significant cause for the decline of United States textile employment.

NAFTA – North Carolina Textiles

North Carolina was one of the most hard-hit states after the implementation of NAFTA. The textile industry in the state of North Carolina showed specific decline, according to information provided by the North Carolina Department of Commerce.

The North Carolina Department of Commerce reveals that a total of 417 textile companies in the state of North Carolina closed during the first 11 years of the North American Free Trade Agreement. According to additional data derived from the Department of Commerce in North Carolina, 15.1% of those factory closures can be contributed to the foreign competition caused as a result of NAFTA.
However, it has also been noted that secondary reasons for the large scale closure of textile factories in North Carolina can be attributed to a failure to modernize and launch policy changes to remain competitive with foreign markets.

Statistically, during the first seven years of NAFTA, 52,419 employees lost their jobs as a result of textile factory closing. As reported by the North Carolina Department of Commerce, 54 companies today playing that their closure was due specifically foreign competition. In other words, those 54 companies blame their closure on the implementation of NAFTA and nothing else. Closer examination of closed factories reveals that, out of the 52,419 employees who lost jobs due to a closure in their employing factory, 18% of those claimed that NAFTA was the definitive reason for their termination. Overall, approximately 10,280 individuals blamed NAFTA for their personal job loss.

The U.S. Department of labor and the North Carolina Department of Commerce remain inconsistent in terms of data published pertaining to job loss as a result of the implementation of NAFTA; and the data is particularly disparate within the textiles industry. It is safe to say that not all job loss in the textile industry during the first few years of the North American Free Trade Agreement in the state of North Carolina is due to the implementation of NAFTA, but it is also needful to say that NAFTA did have a major negative impact on the textiles industry in the state.
Because of the vast disconnect across the board in terms of data and studies, it’s difficult to make a critical assessment as to the severity and detail of the problems caused by the implementation of the trade agreement.

NAFTA – Mitigating Negative Effects in the U.S.

After the implementation of NAFTA, and the admittance that the agreement would bring with it a series of negative effects, the government put into motion the NAFTA Trade Adjustment Assistance Program. This assistance program is a division of the United States Department of Labor and was designed to both monitor and address any negative effects that the North American Free Trade Agreement would have on United States businesses.
It is safe to say that every major national corporation has compiled its own set of mitigating responses to address effects that came via the implementation of NAFTA. However, the U.S. government designed NAFTA Trade Adjustment Assistance Program as a virtual catchall for those affected by the trade agreement in a negative manner.
Basically, the assistance program promised jobs to individuals who were terminated as a result of outsourcing and export. In a highly publicized study performed by Public Citizen, it was noted that out of 65 companies willing to discuss data and information with researchers, only seven of those companies gave any indication that the promise made by the United States government in terms of assistance from the negative effects of NAFTA were being kept.
The Public Citizen report indicated that the NAFTA Trade Adjustment Assistance Program maintains that 38,148 manufacturing employee is had been terminated by the month of August in 1995 as a direct effect of the implementation of NAFTA. Further statistics indicate its effects starting in 1993; the U.S. maintained in annual trade surplus of $3 billion with the nation of Mexico. However within the first of the month of 1995, the United States was well into an $8.6 billion trade deficit with Mexico.

Opponents of NAFTA maintain that the statistics concerning the implementation of the trade agreement paints a morbid, and somewhat alarming, picture of the effects. However, NAFTA supporters maintain that the data reported by Public Citizen is “misleading”. In fact, government statistics indicate that a decline in the value of the peso was a more contributing factor to the trade imbalance, as well as the rise in unemployment rates in the United States, than did actions brought about by the North American Free Trade Agreement. Which brings about an ever popular question; ‘what specific plans were laid into effect in North America in an effort to mitigate negative effects resulting from the implementation of NAFTA? ‘

What are companies in the United States doing to mitigate the effects of NAFTA on commerce within the US? Supporters of NAFTA maintain that company directors who are prudent will be able to put together a business plan to guarantee that their companies continue to grow. These plans are typically designed by encouraging companies to take advantage of opportunities provided by NAFTA.

The businesses that have proven most affected by the changes of NAFTA are those whereon tariff reductions will have a great effect. It must also be noted that changes in rules of origin set forth by the North American Free Trade Agreement can impact the protocol by which some companies manufacture products. As such companies in the United States benefit from efforts that account for the ways NAFTA affects consumers, as well as competitors, before the division of a business plan to mitigate the effects of the agreement.

NAFTA and Six Sigma

One way many companies in the United States are responding to the implementation of NAFTA is through the introduction of Lean Six Sigma into company policy. Six Sigma is a business management strategy that was originally introduced by the Motorola Corporation. Today the use of Six Sigma protocol finds widespread application in a variety of sectors of U.S. industry. The goal of Six Sigma is to improve the quality of procedure output by pinpointing and removing the source of any error and variance in both manufacture and management. The implementation of six Sigma guarantees that a specific sequence of events will take place in effort to reduce costs and increase profits.
Six Sigma has been a common implementation since the introduction of NAFTA, because it uses quantified data to make an educated decision on business policy in direct response to specific problems.

The idea of implementing Six Sigma standards in response to effects caused by NAFTA is to achieve improvement of deficient percentages and levels regardless of economic fluctuation and uncertainty. The implementation of Six Sigma means a change in way of thinking from the bottom of the business food chain to the top. As such, it ensures that each employee of a given company is on the same page — even if that “page” is to respond to negative effects created by the North American Free Trade Agreement.

In the manufacturing sector, “Lean” Six Sigma is the most prevalent response to the effects of NAFTA. The term “lean” refers to specific manufacturing techniques that dramatically reduce or eliminate waste, thereby saving money. As most business professionals know, Lean Six Sigma is the combination of Six Sigma standards and lean manufacturing techniques. Basically, Lean Six Sigma has become an excellent response to the effects of NAFTA in every manufacturing arena; and the textiles industry in particular.

NAFTA – 5, 10, and 15 Years Later

NAFTA – The First 5 Years

Some of the most captivating critical research concerning the implementation of NAFTA is available through a chronological look at statistical data at 5, 10, and 15 years after the trade agreement with set into motion.
In the year 1997, statistical data and study revealed that export from the United States to Mexico increased by 37% between the years 1993 and 1996. This increase created a record-breaking $57 billion increase in trade value between the two countries.

In 1997, President Clinton visited Mexico. At the end of his trip, Clinton reported that by the end of the year, Mexico, previously thought of as a third world country, would purchase more U.S. products than any other nation in the world aside from Canada. This quantity of purchase surpassed even Japan (impressive because the nation of Japan has an economy bordering on 15 times that of the economy in Canada).

Statistically, during the first five years of the North American Free Trade Agreement, 39 out of the 50 states expanded export to Mexico and 44 states saw an increase between the years 1995 and 1996. During the same time frame, United States exports to the nation of Canada increased by an impressive 33%.
Since the implementation of the agreement, United States exportation to the nation of Canada grew by more than 50% and exportation to Mexico almost doubled. These impressive increases reflect an additional $93 billion in United States exports.

Conclusively, during the first five years of the North American Free Trade Agreement, exports to Canada grew more than 50% (representing a $56 billion increase). And, exports to Mexico nearly doubled (represented a $37 million increase). These numbers constitute a dramatic increase in exportation to both nations.
A comparison of estimations made by NAFTA supporters prior to the implementation of the agreement were surpassed by the actual increase in value of export during the initial five years. In short, these impressive figures have led U.S. trade representatives to admit that there were no economic arguments that stood against the North American Free Trade Agreement with in the first five years.

Also during the first five years of NAFTA’s implementation a wide variance in economic studies were presented concerning the issue of employment in the United States. Shortly after the North American Free Trade Agreement was set into motion, the United States Trade Representatives announced that the agreement had created approximately 122,000 jobs inside the United States. These jobs were said to be as a result of increased trade with the nation of Mexico. The trade representatives went on to add that trade with Canada created an additional 189,000 jobs. These numbers represent a total job increase of 311,000.

However, in a contradictory study by the coalition of labor union reported. The North American Free Trade Agreement caused the dissolution of approximately 420,000 U.S. jobs. By the middle of the year 1997 the United States Department of Labor reported more than 116,516 job losses.

The North American Integration and Development Center at UCLA found that the U.S. had gained 11,000 jobs because of the implementation of NAFTA in the year 1997. In turn, they also reported that the United States had lost 38,000 jobs due to Canadian and Mexican competition. On top of that, the center reported a gain of 49,000 jobs resulting from increased exports to the two aforementioned nations. Mathematical review of this information reveals that the North American Free Trade Agreement was a “wash” during its first five years. Because of the inconsistency in reported data, it’s next to impossible to make accurate estimates regarding job loss as a result of the onset of the North American Free Trade Agreement.

NAFTA – The First 10 Years

Additional reports on the implementation of NAFTA by the Department of Commerce revealed that after the initial 10 years of the agreement, exports from the United States to Mexico continued to outpace exports to the rest of the world. In fact, American firms reported and exportation total of approximately $651 billion in the year 2003.
The number of exports totaled $83 billion to Mexico at $148 billion to Canada within the first 10 years of NAFTA. As such, the Commerce Department reported that NAFTA, in the first 10 years, was successful in stimulating trade between the U.S., Canada, and Mexico. According to reports between the years 1993 and 2003, 2-way trade between the U.S., Canada, and Mexico increased by a staggering 111%. In addition to that, 2-way trade between the U.S. and the remainder of the world increased by nearly 80%.

Between the years 1994 and 2002, investments from Mexico into the U.S. increased by a staggering 280%. The report also indicated an increase in investments between the United States and non-NAFTA countries of 185%.
Statistics also revealed that, during the first decade of NAFTA’s implementation in the United States reduced most international trade barriers, thereby increasing market access and pricing advantage to over countries like South Korea, Japan, and China.

Within NAFTA’s first decade, laborers in the United States were promised an additional 170,000 jobs in each year. Because it was believed that NAFTA would increase trade surplus between Mexico and the United States, it was believed that employment rates would increase as a result of the surplus. However, reports indicate that employment within the first decade of NAFTA’s implementation remained at a “wash”. According to Forbes Magazine, ten year into NAFTA, ““The nation’s [United States] largest employer is now Wal-Mart which pays its employees an average wage of $ 7.50/ hour.” (Forbes)
So, while exportation grew dramatically within the first 10 years of the North American Free Trade Agreement, employment increase versus employment decreased created an impasse.

NAFTA – The First 15 Years

In January of 2008 the first 15 year phased-in of the North American Free Trade Agreement came to an end. And according to the United States government, the agreement has been one of the most successful trade agreements in U.S. history. Data rounding out the year 2007 indicated that trade with Mexico (especially food and farm exports) were at the highest level ever thanks to the implementation of NAFTA. This trade amount was in excess of $11.5 billion. Interestingly enough, agricultural trade with Mexico, both import and export, was at $7 billion in 1994 compared to approximately $20 billion in by the end of the year 2006.

At the end of the phase-in period, trade with Canada had grown from around $4 billion in the year 1992 to $12 billion by the end the year 2006. In fact, exportation of consumer-oriented products from the United States to Canada reached record levels in the final months of 2007 before the end of the phase-in period.

At the end of the 15 year phased in period, NAFTA had resulted in a tripling of the United States trade with the nation of Canada and Mexico. Trade between the three nations increased from $293 billion a year 1993 to nearly $1 trillion by January 2008. Additionally, United States export of service to Mexico and Canada grew $60 billion each year. Today, the three countries involved in the North American Free Trade Agreement do in excess of $2.5 billion worth of trade each day.

Mexico and Canada represent the two largest U.S. export markets in the world. In fact, the two nations purchase more than one third of the United States total exports. The United States’ product export to the nation of Canada and Mexico increased from $142 billion in initial year of NAFTA to a reported $422 billion a by January 2008. This increase represents a tripling of U.S. export to Canada and Mexico. This increase of 197% took place during a period when United States export to the remainder of the world increased by approximately 140%
It is safe to say that NAFTA has bolstered the United States economy in several ways. Based on the statistical data, the phase-in period between year 1993 and 2007 represents a successful trade agreement. Consequently, United States GDP increased by 54% ,Canadian GDP grew by 56%, and Mexican GDP increased by 48% at the end of the 15 year period.

Reports indicate however that NAFTA has created a job loss of in excess of one million jobs. Unemployment in the United States has increased from 110.7 million in the initial year of NAFTA to 140 million by the end of 2007. This job loss represents an increase of greater than 28 million jobs; a 25% increase. Between the years 1994 and 2007 the unemployment rate averaged at 5.1%. This average compares with a 7.1% unemployment rate in a few years prior to NAFTA’s implementation.

Economists argue that this change in unemployment rate has little or nothing to do with the North American Free Trade Agreement. It is argued that changes in the United States economy, and the financial crisis that struck the U.S. in the year 2008 has created a recent unemployment rise, thereby negating any affects of NAFTA’s estimated impact on the employment level.

Today, post-NAFTA phase-in, American manufacturers are facing some intense difficulties thanks to a current recession. As such, revenue from exportation to Mexico and Canada is at critical level. Currently, more than 13 million U.S. citizens are employed in import export manufacture. These employees represent $870 billion worth of revenue. It’s also reported that Mexicans and Canadians purchased nearly S330 billion worth of United States manufactured products in the year 2007.

In short, the NAFTA trade market brings with it exportation revenue of nearly $25,000 for every U.S. manufacturing factory worker. Conclusively, after the first 15 years of the North American Free Trade Agreement, statistical data indicates that the agreement is more vital now than ever. Members of the United States Chamber of Commerce will report its benefits firsthand and continue to study opportunities NAFTA has created for employees, consumers, farmers, and American companies]. 2009 represents an early year after the phase-in period, but President Obama states that NAFTA will continue to play foundational role in U.S. import and export.

NAFTA – Benefit or Detriment
The big question is whether or not NAFTA has been a benefit or detriment to the United States. Unfortunately, opinions are so varied in this area that the jury remains out on the pros and cons of the agreement. However, data records reveal a massive increase in trade between Mexico, Canada, and the United States. Data also indicates an increase in revenue transfer between these three nations. So, what exactly has NAFTA done for the United States as a whole?

It is safe to say that the implementation of the North American Free Trade Agreement has created job loss in many states in the United States. Unfortunately, the southeastern region of the US seems to feel the brunt of these job losses. However, overall statistical data indicates that job loss nationally versus job creation is almost equal. Since the implementation of the agreement in 1994, 3-way trade between Mexico, Canada, and the United States has increased substantially.

In addition, consensus of the unemployment rate in the United States reveals that the unemployment rate at the end of the 15 year phase-in period was at 4.9%. The current unemployment rate is significantly lower than the 6.6% unemployment rate reported in January of 1994.
According to reports from the U.S. Chamber of Commerce, average American consumers have benefited from decreased pricing on imported goods, a fact that brings to light one of the most publicized benefits NAFTA has brought to the American public.

One of the major factors to bring alarm to the implied benefits of the North American Free Trade Agreement is the trade deficit with both Canada and Mexico. The current trade deficit between the countries is $138.5 billion in comparison to the $9.1 billion in 1993.
As far as the state of North Carolina is concerned, it’s safe to say that the citizens of North Carolina maintain markedly mixed feelings about the implementation of NAFTA.

Since the policies induction in 1993, North Carolina has made impressive strides in the development of high-tech companies. However, almost one third of North Carolina factory workers are employed in the textiles industry. Unfortunately, the textiles and clothing industry represents the exact sector that the North American Free Trade Agreement was designed to draw into Mexico.

Although the state of North Carolina has remained one of the hardest hit states post-NAFTA, certain areas of industry within the state continue to thrive. While much of the export within the textile industry has migrated from the United States to Mexico, NAFTA has encouraged foreign investment in the textiles industry.
An overall review of the North American Free Trade Agreement brings to light both progress and criticism in every area of industry. In the automobile industry, NAFTA represents a decrease in Mexican tariffs and an increase in North American overall trade. NAFTA has also limited requirements that automobile manufacturers must produce vehicles in Mexico and utilize only Mexican parts.

The textiles and apparel industry has eliminated trade barriers on U.S.- Mexican textile and apparel trade.
In the agricultural industry, NAFTA has reduced tariffs for agricultural export into Mexico. The agreement has also eliminated Mexico’s licensure requirements for poultry, dairy, and grain.

And the financial services industry has eliminated Mexican restrictions on both U.S. and Canadian ownership and prerequisites for commercial banking, securities trading, insurance, and additional financial services.
Under the agreement, the United States financial firms, as well as those in Canada, are free to establish wholly-owned subsidiaries in the nation of Mexico as well as to engage in activities similar to those operated by additional Mexican firms.

Has NAFTA been successful overall? It’s safe to say that the implementation of the North American Free Trade Agreement has not solved all of North America’s economic problems. However, review of the critical data reveals that NAFTA has not been the great disaster that most critics predicted it to be.

Conclusion

The North American Free Trade Agreement is above all else a “free” trade agreement. As such, the benefits thereof have been derived from movement of resources and manufacture; this movement has thus far represented a shift in both import and export. Incoming statistical implication reveals that a shift in imports and exports have been, for the most part, positive. In fact, datasets revealed that NAFTA has, overall, achieved its goal of increasing exportation and decreasing importation to the United States.
Based on these criteria, the agreement has been a success in the U.S. and Mexico. Also, as predicted, the agreement has done little to bolster the overall Canadian economy.

Empirical analysis of NAFTA related datasets take into account external impacts caused by, for example, the 1995 peso crisis, as well as the American recession. Either way, the enhancements in economic ties between the three North American nations has proven of benefit, as it has aided in the facilitation of a return to foreign investments. It can also be easily stated that NAFTA is a success simply because it has dramatically bolstered the Mexican economy.
Yes, NAFTA has damaged American jobs. However, the agreement has not brought about the death of the American workforce. Aside from that, NAFTA has not created the impressive increase in available American jobs as originally predicted.

Throughout the first 15 years of the North American Free Trade Agreement, the United States income and employment grew steadily. Unfortunately, Mexico experienced a currency crisis in the year 1995 and Mexican employment fell sharply. However, the effects of this crisis are currently showing signs of recovery.
In conclusion, the initial years of NAFTA’s implementation have created a clear and concise trend revealing increased trade in North America. Datasets following the implementation of NAFTA also revealed an increased manufacturing productivity rate in the U.S.
Unfortunately, it is difficult to pinpoint how much progress or decline is related directly to the North American Free Trade Agreement. Reports from varying sources represent a vast difference in opinion. Government reports indicate that the overall NAFTA outcome has been successful. Individual businesses in North Carolina, for example, publish reports that pinpoint the negative aspects (i.e. increased unemployment in the state) surrounded the agreement.
Because there is a wide variety of factors that can affect foreign trade markets and investment, it’s impossible to make claims that are pro or con NAFTA. However, it is believed that, as more time passes and more data is reviewed, naysayers will fall into the background and a more clear image of the positive effects NAFTA has had on the economy will be revealed. “Economic liberalization under NAFTA has been a slow process, and is still incomplete.  Moving forward, both the United States and Mexico will undoubtedly face more challenges to free trade.” (NCPA 619)

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