Joshua Ondo Macroeconomics Debate Paper NAFTA, the North American Free Trade Agreement. It spans all of Mexico, the United States, and Canada. It links over 440 million people and produces hundreds of billions of dollars in trade ever year. Yet, one must ask, is it a good idea or a bad idea for the United States and its friends to the north and south? Critics of NAFTA have often looked to Mexico and the US for answers.
Critics claim that NAFTA has caused a “net 879,000 total job loss in the US”. (Amadeo) The reasons that this job loss is so high is because companies move to Mexico for it’s cheaper labor and a population willing to work for much less than those living in the United States. This lead to manufacturing firms in the United States to lower wages in order to compete with their fellow companies that had gone south of the border.
Critics also believe that NAFTA has lead to “a decline in labor protection and degradation of the environment in Mexico” (Amadeo) This is mainly do to the fact that Mexico’s Government is not quite as into the green movement as is the states and it’s officials are often corrupt and easily bought into allowing environment slip ups or worker’s right laws and regulations to be over looked. This lead to one big problem for the US and Mexico. Many of Mexico’s famers were put out of business due to the US subsidizing farm products.
In the most recent presidential election there was a lot of debate over the future of NAFTA and what it meant to the American people. Then senator Clinton said that she “wants to halt all new trade agreements and strictly enforce existing agreements, including all regional trade agreements. ”(Amadeo) Yet, senator now President, Obama “blames “politicians in Washington” for signing trade agreements that he says are bad for the economy because they provide perks for businesses but don’t protect workers. (Amadeo) However, there are also those that are in favor of NAFTA. Those in favor tend to look at how it increases the US GDP by “. 5% every year”(Amadeo) They also look at how exports grew 151% from $142 billion to $364. 6 billion and Imports grew 231% from $151 billion to $501 billion. All of these changes took place in a relatively short time in economy standards from 1993 to 2007. Because of farms shutting down in Mexico America saw an increase from 22% to 30% from 1993 to 2007. (Amadeo) NAFTA also gets ride of trade barriers for service baring companies.
Before NAFTA, there were formally a large number of regulations for service industries that were often hidden or unclear to many companies. Now that NAFTA is in place it requires that all regulations be published clearly. Lastly NAFTA helps to improve FDI or foreign direct investment. It does this by reducing risk for investors by allowing them to have the same rights as local investors. It also allows them to get a far market price for their investment and allows them to dispute a number they believe is unfair or outrageous with the government.
So is it good or bad? Experts are split. However, if we look at the graph1 and graph 2, one can see that the numbers don’t lie. Imports and exports have defiantly increased and lead to more money for the United States, Mexico, and Canada. One can also see the gradual increase in consumption in the united states and the shifting of jobs after 1993 that leads to an increase in imports from Mexico to the United States from looking at graph 3.
Although the numbers for GDP are good because of NAFTA, I still believe that NAFTA is overall bad. This is because of the loss in jobs and decrease in wages. NAFTA may have helped us to become richer country but, in doing so our workers have had to suffer from wage cuts and reductions as well as lay offs. As well as all of this as one can see by looking at chart 1 and 2, the US is importing more than it is exporting creating a massive trade defecate and simply making the government owe more money.
The only solution that I believe can solve or reduce this problem is a change in the American people. We are a nation of consumers and are truly a throw away society. Consuming less would decrease the need to import so much from other countries and would make jobs look more fascinating to those companies who have moved to the north or to the south. Wages would start to rise and things would begin to return to normal. However, what I am suggesting is a near impossible endeavor that will probably never come to fruition until it is to late.