Impact of NAFTA on North American Trade

The North American Free Trade Agreement (NAFTA) is a trade agreement that was signed by Canada, United States and Mexico in 1992. President George W. Bush signed the agreement and held most of the responsibility to ensuring that the agreement went through. However NAFTA was not fully completed until Bill Clinton’s administration during which the agreement became law and its policies were enacted. The agreement removed any obstacles to trade and investment between the North American countries. The agreement also removed tariffs between Mexico and the United States. The purpose of the agreement was to allow an atmosphere in which all three nations could thrive economically. NAFTA has drastically impacted trade between the United States, Mexico and Canada. This impact on trade between the three nations will be analyzed as well as a focus on the changes within the Mexican trucking industry.

NAFTA was enacted after many years of controversy and negotiation both between and within nations. Multiple United States presidents since Ronald Reagan have attempted to create an international agreement that would open up trade and commerce between the North American nations. Supporters of the agreement argued that it would reduce costs of trading, increase investment and allow the nations to become competitive with the growing global market. The opponents of the agreement argued that the agreement would be detrimental to the US economy rather than boosting the economy. Burfisher (2001), discussed how these arguments were mainly focused around the loss of jobs to other nations especially Mexico. “Often these arguments took on a mercantilist tone, with NAFTA opponents arguing that imports from Mexico- accompanied by surging capital flows to Mexico-would destroy jobs in the United States” (Burfisher, 2001 125). After years of negotiation and development a law was created that appeared to be beneficial to all of the nations involved and also met the requirements that each nations’ leader required. Lawmakers in Congress pushed through the bill after much discussion with a close margin of victory.

Despite the arguments about job loss, the United States experienced a period or prosperity and job growth after the enactment of NAFTA. United States was able to participate in increased trade without the costs that these dealings would typically incur. The agreement also served the purposes that it was designed for by policymakers. Costs of trading have been reduced significantly for all three nations as the agreement also provided a means for resolving trade disputes. Business investments were also increased for all three nations involved in the agreement. The United States, Mexico and Canada have also become more competitive in the global marketplace as they became economically sound. This has been an important consequence for the three nations especially since Hong Kong has become prominent on the global scene. NAFTA allowed these nations to be able to adapt to the changing global economy by allowing them to compete.

As a result of reduced costs of trading between the nations, trading has increased exponentially. Canada has seen an increase in exports to both the United States and Mexico. Wall (2000), identified how Canada’s trade has directly been impacted by NAFTA. “Specifically, NAFTA has meant (i) less trade between Eastern Canada and the United States and Mexico, (ii) more trade between Central Canada and the United States and Mexico, and (iii) more trade between Western Canada and Mexico” (Wall, 2000 np). The United States in turn has also experienced broader trade between the other two nations. However the impact on the labor market in the United States has been debatable as some have argued that the agreement has created new jobs. Others have claimed that the NAFTA has resulted in jobs being taken abroad to Mexico as factories are built that can produce goods at a cheaper rate and then are traded to the United States without any of the expensive tariffs that were previously required. Trade for Mexico has also increased and has allowed the nation to develop trade agreements with other nations outside of the NAFTA agreement. However NAFTA has resulted in Mexico’s dependence on the United States for most of their economic trades. This has been demonstrated by the lack of growth in Mexico’s GDP since the implementation of the agreement. While Mexico’s economy has faltered despite the agreement other areas has shown improvement and progress.

Mexico’s factories that produce goods from raw materials, known as Maquiladoras, have flourished under the NAFTA agreement. These factories have been able to profit from using raw materials that they import at a low cost from the United States and due to the free trade agreements are then able to export these goods to other nations even if they are not a part of NAFTA. To send these goods to other nations Mexico has relied on the trucking industry to deliver these goods. Within the NAFTA agreement, the three nations allowed each other’s trucks to be able to move freely on the nation’s highway systems. Therefore, the United States would allow a small number of Mexican trucking companies to travel on their highways through this cross-border travel arrangement to deliver goods and materials. This arrangement provided the opportunity for Mexican truckers to be able to travel freely on the most expansive and well maintained highway systems in the United States. This free movement also provided a profit for the Maquiladoras, which produced the goods that were being transported free of tariff to the United States.

The free travel on the highways aspect of the NAFTA agreement came into contention with those in the United States trucking industry as they saw these other companies as competition. They argued that while Mexican trucking companies obtained the benefits of traveling on a safe highway system, they had to travel on Mexican highway systems that were not well maintained or particularly safe. These companies also raised a question on the safety of the Mexican trucks themselves to be able to hold cargo. Due to these claims the United States restricted the travel of Mexican trucking companies on their highways. Mexico in turn retaliated with high tariffs on trades. Both actions were in violation of NAFTA. Arguments have also been made that the claims made by United States trucking companies were false and that Mexican trucking companies have invested in new trucks that would meet the safety standards of the United States. 

The purpose of the NAFTA agreement was to improve the economic prospects of the United States, Canada and Mexico. However as time has passed the nations have no longer fully cooperated with the stipulations of the agreement, especially in terms of the cross border travel arrangements. NAFTA has also appeared to disproportionately benefit the United States more than any other nation involved in the agreement especially Mexico. After the agreement was enacted the United States enjoyed a period of prosperity that lasted almost a decade into the early 2000’s. In contrast Mexico’s GDP has not increased as NAFTA has opened up trade and investment between the nations. While the Mexican trucking industry benefited from the cross border travel agreement when NAFTA was first enacted, the United States refusal to comply with the agreement has made it so they no longer benefit from the policy measure. The increased tariffs posed by Mexico against the United States also go against NAFTA and serve to be detrimental for United States economic policy as well as the good will that has developed between the nations as a result of the agreement. The cross border arrangement should continue to be followed so that United States, Mexico and Canada can all continue to benefit from the NAFTA agreement. 

References

Burfisher, M. E., Robinson, S., & Thierfelder, K. (2001). The impact of NAFTA on the United States. The Journal of Economic Perspectives, 15(1), 125-144.

Wall, H. J. (2000). NAFTA and the geography of North American trade. Federal Reserve Bank of St. Louis Working Paper Series.