When negotiations for NAFTA started in 1991, Mexico had a developing economy while the United States and Canada had developed economies. The goal was to integrate the Mexican economy with those of the United States and Canada. The integration was expected to bring growth and jobs to Mexico, hopefully discouraging illegal migration.
The United States and Canada hoped for an opening of new markets for their goods in Mexico. The lower cost of investment in Mexico was seen as an opportunity to improve competitiveness in the United States and Canadian companies.
The US auto industry remain competitive with Chinese competitors thanks to the reduced tariff reductions and protections of intellectual property rights in NAFTA’s agreement. This agreement allowed US auto makers to develop cross-border supply chains, contributing to increased productivity.
Lost of jobs
The NAFTA agreement had some negative impact on the job market, which is expected from any free trade agreement. Direct competition is likely to force some underperforming industries into liquidation. Jobs will be lost as a result.
Politicians seeking elected office have been using the expected job displacement to create anxiety about the agreement. They are omitting the overriding benefits for the economy and consumers due to the agreement.
Free trade forces less efficient industries to become more efficient. It also allows more efficient industries to grow, resulting in an increase in average industry productivity.
Import competition curbs monopoly power, resulting in consumers’ benefit. The NAFTA agreement gave consumers access to cheaper goods.
Investment and trade
The US and Mexican investments in Canada have tripled. The US investments rose from $70 billion to $368 billion between 1993 and 2013.
The pact opened the Canadian economy to US markets. Canadian export to the US grew from $110 billion to 346 billion. Canada imported from the US grew about the same.
All trade agreements have positive and negative consequences for signatories. To focus on single aspect of an agreement without examining the overall benefits is unwise. The NAFTA agreement has a big impact on the price of consumer’s goods and survival of businesses within the trading bloc. Business leaders and consumers must make a contributions to this important debate.
Do consumers believe that the job losses amplified by politicians should jeopardize this important pact?