Economics BLK E
The North American Free Trade Agreement is crucial to sustaining a healthy economy for Canada and the United States. NAFTA provides various benefits for our markets such as increases in trade, production and jobs. Although there are downsides to NAFTA such as exploitation and environmental harm, the benefits substantially overpower the disadvantages. This trade agreement has quadrupled trade, lowered prices, increased economic growth, and created jobs (Amadeo).
The North American Free Trade Agreement is the world’s largest trade agreement that is formed between Canada, Mexico and the United States of America This treaty was signed and administered on January 1, 1994, by Prime Minister Brian Mulroney, Mexican President Carlos Salinas, and U.S. President George H.W Bush. Through the success of the Free Trade Agreement between the U.S and Canada, NAFTA was born and has brought economic development and helped stimulate the market. As a result of this agreement, a trilateral free-trade bloc has been created, which has eliminated most tariffs and trade barriers on goods traded between these countries. (Government of Canada, Foreign Affairs Trade and Development Canada, Deputy Minister of Foreign Affairs, Assistant Deputy Minister Public Affairs, Corporate Communications, E-Communications.) Through NAFTA, production and investment opportunities have increased, resulting in flourishing economies in Mexico, Canada and the U.S.A. The North American Free Trade Agreement has linked hundreds of millions of people, creating the world’s largest free trade area and generating a total GDP of “more than $ 20 trillion dollars” (Amadeo).
The presence of NAFTA is of great importance to Canada and the United States of America because of the increase in trade between the countries. “Between 1993 – 2015 trade between the three members quadrupled, from $297 billion to $1.14 trillion” (Amadeo). Eliminating tariffs provides stimulus for economic growth and lowers prices creating an economy where people are benefited. In this period, exports in the U.S boosted from $142 billion to $517 billion and Canada benefited by receiving those imports (Amadeo). Consequently, the growth in the United States has increased by 0.5 per year because of exports in agriculture and automotive. NAFTA provides agreements on international rights for investors which also protects patents and trademarks, making sure deals are transparent and fair. With the absence of NAFTA, Canada and the U.S.A would not have been able to expand their trade or be able to compete with the aggressive markets in China and the European Union. Thus, their economies would not be thriving as they are today (Boundless).
Another importance of the North American Free Trade Agreement is the 5 million jobs it created in the U.S. Although U.S jobs were lost and transferred to Mexico, millions were created as well (North American Free Trade Agreement). Without NAFTA more jobs would not have been created, leaving a ripple effect in the United States. The fewer money people were making, the less goods and services they would purchase and the cycle would continue leaving the market in shambles. Additionally, the $2.2 trillion dollars of American goods produced last year were primarily exported to Canada, who supported “millions of U.S jobs in the process” (Finlayson).
NAFTA’s benefits include lowered prices on imported goods which are critical in ensuring the interest rates are kept down and risk of inflation is kept at bay. Without tariffs, we are able to access lower-priced goods that have high quality, such as oil. With NAFTA, the U.S. was able to receive cheaper oil from Canada and Mexico compared to their prior imports from the Middle East (Finlayson). An additional benefit of this agreement that has an impact on the citizens of the three countries, is the price of groceries. Lacking NAFTA our grocery bills would be extremely high and the prices of fruits, vegetables and some meats would be at ridiculous prices (Foreign Affairs and International Trade Canada, and Nafta).
Despite the fact that NAFTA is an economic success, there are some cons to this treaty such as the loss of jobs in the manufacturing industries. Many people in states such as California were forced to give up their jobs which had moved to Mexico because of the cheap labour. Furthermore, the U.S. factories that remained had their wages suppressed; however, the average wages of factory workers did increase with the presence of NAFTA. With the migration of industries to Mexico, Mexican workers were exploited in the maquiladora programs which was a big area of concern. Because NAFTA had taken away Mexican farming jobs, most workers resorted to working in the factories which had poor conditions and were terrible for the environment. Previous Mexican farmers had no choice but to resort to the maquiladora programs because they could not compete with American prices (Amadeo).
Altogether NAFTA has profited both the American and Canadian economy by generating growth and minimizing government spending. The trilateral agreement has increased competition allowing the countries to be contenders against the Chinese and European economies. It has provided stimulus for our markets, and allowed for advances and innovation which will help lead our countries forward. NAFTA has increased productivity across North America and attracted foreign investment from over the world, helping us become more globalized. These 3 countries have gained significant power within these past years and the implementation of this pact has expanded the North American economy by a sizable amount. The total GDP of the three partners has reached $20.7 trillion US dollars in 2015 and they represent 28 % of the world’s GDP with only around 7 % of the world’s population. (North American Free Trade Agreement (NAFTA)).
When President Donald Trump was inaugurated in January 2017, one of his first motions was to renegotiate NAFTA as he didn’t believe the U.S was truly benefiting from the deal. However, the effects of terminating or renegotiating this deal are detrimental as the deal is producing positive outcomes so far. Any disruption in their current trade flow could harm the US economy and jobs of citizens. Currently, Canada provides the biggest export market for many US states and trade is well-balanced between the two. Furthermore, last year, the U.S had a trade deficit with Canada of $11 billion dollars which gave them a surplus. In hindrance of the North American Free Trade Agreement, the oil and natural gas markets in the States would be severely impacted as Canada is a lead exporter of these materials. Conclusively, Canada has a key connection to the United States which is crucial to maintaining the billions of dollars flowing in from goods and services (Finlayson).