A Positive Result of Trade Agreements Such as Nafta

The following websites provide information on USMCA implementation, available resources and trade data: The North American Free Trade Agreement (NAFTA) was implemented to promote trade between the United States, Canada and Mexico. The agreement, which eliminated most tariffs on trade between the three countries, entered into force on 1 January 1994. Many customs duties, particularly in the areas of agriculture, textiles and automobiles, were phased out between 1 January 1994 and 1 January 2008. The compact has catalyzed Mexico`s transition from one of the world`s most protectionist economies to one of the most trade-friendly. Mexico had eliminated many of its trade barriers when it acceded to the General Agreement on Tariffs and Trade (GATT), the forerunner of the WTO, in 1986, but still had an average tariff level of 10% before NAFTA. Many analysts explain these divergent results by pointing to the « two-speed » nature of the Mexican economy, in which NAFTA has spurred growth in foreign investment, high-tech manufacturing and wage growth in the industrial North, while the largely agrarian South has remained detached from this new economy. University of Pennsylvania economist Mauro Guillen has argued that growing inequality in Mexico is due to the fact that NAFTA-oriented northern workers receive much higher wages through trade-related activities. NAFTA has been complemented by two other regulations: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labour Cooperation (NAALC). These tangential agreements were aimed at preventing companies from migrating to other countries to take advantage of lower wages, softer health and safety regulations for workers, and more flexible environmental regulations. The Trump administration renegotiated in an effort to reduce the U.S.-Mexico trade deficit. The new agreement amends NAFTA in six main areas.

Third, the stronger growth of NAFTA has created jobs. According to a 2010 report, U.S. free trade agreements – the lion`s share of which came from NAFTA – directly supported 5.4 million jobs, while trade with these countries supported 17.7 million. Under the agreement, Canada agreed to grant better access to its milk market and received several concessions in return. The USMCA will retain the Chapter 19 Dispute Committee on which Canada relies to protect it from U.S. trade measures. It also avoided a proposed five-year expiry clause and instead used a sixteen-year period with a six-year review. The legislation was drafted under President George H. W. Bush as the first phase of his Enterprise for the Americas initiative.

The Clinton administration, which signed NAFTA in 1993, believed it would create 200,000 U.S. jobs in two years and 1 million in five years, as exports play an important role in U.S. economic growth. The government expected a dramatic increase in U.S. imports from Mexico due to lower tariffs. Fifth, U.S. companies have worsened the Mexican environment to cut costs. The agricultural industry in Mexico has used more fertilizers and other chemicals, which has led to an increase in pollution. Rural farmers have been forced to cultivate marginal land to stay in business, leading to increased deforestation rates. Moreover, many economists argue that recent U.S. production problems have little to do with NAFTA, arguing that domestic production was under pressure decades before the treaty.

Research by David Autor, David Dorn and Gordon Hanson, published in 2016 [PDF], found that competition with China has had a much greater negative impact on U.S. employment since 2001, when China joined the WTO. Hanson, an economist and trade expert at the University of California, San Diego (UCSD), says the biggest decline in manufacturing jobs — seventeen to eleven million between 2000 and 2010 — is largely due to trade with China and underlying technological changes. « China tops the list in terms of the impact on jobs that we`ve seen since 2000, with technology in second place and NAFTA much less important, » he says. CFR`s Edward Alden says fears of trade deals have increased because wages have not kept pace with labor productivity, while income inequality has risen. To some extent, he says, trade agreements have accelerated the pace of these changes by « amplifying the globalization of the U.S. economy. » Many economists argue that the current funding of the TAA is far from sufficient to cope with the increase in trade-related job losses. « There are bags that have felt a lot of pain, » Hanson says. « The existence of these bags underscores our political inability to help regions and individuals adapt to the effects of globalization. » Much of the debate among policy experts has focused on how to mitigate the negative effects of agreements like NAFTA, including whether to compensate workers who lose their jobs or offer retraining programs to help them transition to new industries. Experts say programs like the U.S. Trade Adjustment Assistance (TAA), which helps workers pay for their education or training to find new jobs, could help ease anger over trade liberalization.

Ultimately, according to many experts, Mexico`s recent economic performance has been influenced by factors unrelated to NAFTA. The depreciation of the peso in 1994 boosted Mexican exports, while competition with China`s low-cost manufacturing sector likely dampened growth. Independent public policies, such as land reform, have made it easier for farmers to sell their land and emigrate. UCSD`s Hanson argued that Mexico`s struggles have largely domestic causes: underdeveloped credit markets, a large and unproductive informal sector, and dysfunctional regulation. In late 2019, the Trump administration gained congressional Democratic support for the USMCA after agreeing to incorporate a greater application of labor. In the updated pact, the parties agreed on a number of changes: the rules of origin for the automotive industry were strengthened, so that 75% of each vehicle had to come from member countries, compared to 62.5%; and new working conditions were added, so that 40% of each vehicle had to come from factories that paid at least $16 an hour. A proposal to expand intellectual property protection for U.S. pharmaceuticals — a long red line for U.S.

trade negotiators — has been sacrificed. The USMCA also significantly reduces the controversial investor-state dispute settlement mechanism, eliminating it entirely with Canada and limiting it to certain sectors with Mexico, including oil and gas and telecommunications. Second, increased trade has boosted economic output. The U.S. International Trade Commission noted that this full implementation of NAFTA would expand the United States. Mexican politicians saw NAFTA as an opportunity to accelerate and secure these hard-won reforms of the Mexican economy. In addition to liberalizing trade, Mexican leaders have reduced public debt, introduced a rule for a balanced budget, stabilized inflation, and built up the country`s foreign exchange reserves. Although Mexico was hit hard by the 2008 financial crisis due to its dependence on exports to the U.S. market – the following year, Mexican exports to the U.S. fell by 17 percent and its economy contracted by more than 6 percent – its economy recovered relatively quickly and returned to growth in 2010. But other economists, including Gary Clyde Hufbauer and Cathleen Cimino-Isaacs of the Peterson Institute for International Economics (PIIE), have pointed out that increased trade brings overall gains to the U.S.

economy. Some jobs are lost because of imports, but others are created, and consumers benefit greatly from lower prices and often improved quality of goods. Their 2014 PIIE study on the impact of NAFTA found a net loss of about fifteen thousand jobs a year due to the pact – but gains of about $450,000 for every job lost in the form of higher productivity and lower consumer prices. These benefits of trade often escape attention because, although the costs are highly concentrated in certain industries such as auto manufacturing, the benefits of an agreement like NAFTA are widely distributed across society. .