The 1993
North American Free Trade Agreement (NAFTA) eased restrictions on commerce between the
United States, Canada and
Mexico by providing
duty-free trade on multiple classes of goods and introducing new regulations to encourage cross-border corporate
investment. Effects on the economies, companies and populations of all three NAFTA partners are significant. In this article, we'll outline both the positive and negative effects each NAFTA nation experiences.
MexicoChapter 11 investment guarantees, which give
investing companies certain guarantees of profitability and immunity from regulatory change, encouraged huge
U.S. investments in
Mexico and
Canada after 1994. According to one study, foreign
direct investment induced by NAFTA increased 70% in
Mexico in 1994 and was up by 435% a decade later.
While the impact of
U.S. investment in
Mexicohas been substantial, it is less than some had anticipated. Much of the trade between the two countries involved
exporting U.S. parts to
maquiladoras, the Mexican factories that sprang up near the border to take advantage of cheap labor. Workers would assemble the parts into goods, such as appliances, television sets and
auto assemblies, then re-export the assembled products to the U.S.
Corporate investment in
maquiladoras was expected to produce a Mexican middle class that would become a large market for
U.S. goods. But the plan failed to live up to expectations, as skills and
productivity lagged behind labor costs and jobs moved to
China. U.S./Mexico truck-transport problems also raised costs for Mexican products coming to the
U.S. (The middle class may be on the decline in the
U.S. as well. Read
Losing The Middle Class to learn more.)
To compound the problem, the migration of workers from
Mexico City and further south in numbers not easily accommodated in small border towns produced overpopulated slums with high living costs for the Mexican workers. Nonetheless, some argue that the competition between Asia and the
U.S. could have become worse without the temporary low-cost labor available to
U.S. companies in
Mexico.
Because of all these issues, the effects of NAFTA were largely negative for
Mexico. The increase in the middle class was insignificant and many of the original NAFTA jobs went to
Asia. The concentration of workers at the
U.S. border had deleterious effects on the close-knit Mexican family structure because the living conditions in the border towns did not support more than single-worker residence. While some jobs remain in
Mexico, the county has yet to realize the full benefits of the agreement.
CanadaCanada has so far experienced significant benefit from:
- U.S. investment in automotive production,
- Increases in oil exports to the U.S. and the rest of the world,
- Increases in shipment of beef, agricultural, wood and paper products to the U.S.
- Export of mineral and mining products, which have fared well in U.S. markets.
Canada has, however, experienced some losses in narrow sectors such as specialty steel production and processed foods due to
U.S. imports.
Cities such as
Windsor,
Ontario, profited from being close to
Detroit, where
automotive partsand assembly facilities developed on both sides of the border. The eastern and western parts of
Canada benefited from NAFTA re-export, as well as from increased traffic through their ports.
U.S. investment provided higher-paying jobs in the automotive, agri-business,
energy, aerospace and
transportation sectors, among others. This added to the ranks of the Canadian middle class and increased the level of secondary education in the population. It also provided jobs for the wave of immigrants from
India and
Pakistan who are currently residing in
Canada.
United StatesU.S. economic winners and losers under NAFTA vary with company size, type of
industry or
sector, and geographical location. Sectors affected positively include planes, trains and
automobiles, large agri-businesses, appliance makers and energy corporations. Clearly, large multi-national companies with investment capacities, world-market savvy and
capitalresources have benefited from protected investment and cheap labor. These companies enhanced management
performance-based compensation while putting downward pressure on production-worker wages and benefits, collective bargaining clout and available jobs, especially in manufacturing. Many view their actions as a major contributor to compensation inequality. (To read more about how income inequality is determined, and its importance, read
The Gini Index: Measuring Income Distribution.)
With their lack of internal resources, small regional
businesses are not offered the same opportunities by NAFTA, and in fact, the agreement makes them more vulnerable to the concentrated local effect of a multi-national competitor. U.S. manufacturing, often in concentrated geographical areas, suffered large business and job losses as NAFTA cast a shadow over any labor-intensive process that is not highly automated.
While much of the economy experienced gains, the concentration of losses in regional geographical pockets impacted by inexpensive Mexican labor sharpened the blow for many people. The availability of Mexican labor suppressed
real wages, reduced benefits and limited collective bargaining power for production workers in the U.S. According to one estimate, workers in
Canada and
Mexico have displaced 829,280
U.S. jobs, mostly high-wage positions in manufacturing. The heaviest
U.S. manufacturing-job losses were in states such as
Ohio,
Michigan,
Pennsylvania,
New York,
North Carolina,
Texas,
Connecticut,
New Jersey,
California,
Indiana and
Florida. NAFTA proponents, however, argue that increased sales to
Canada and
Mexico made possible by the agreement have created new jobs and raised incomes in the
U.S. overall.
Overall Impact The long-time growth in the
U.S. trade deficit accelerated dramatically after NAFTA became effective in 1994. According to the
Bureau of Labor Statistics, the $30 billion
U.S. trade deficit in 1993 increased 281% to an inflation-adjusted $85 billion in 2002.
Despite a growing trade deficit, a report from the Office of the U.S. Trade Representative categorizes the trade effects as positive:
- Between 1993 and 2006, trade among NAFTA partners climbed 197%, from $297 billion to $883 billion.
- U.S. exports to NAFTA partners grew 157%, versus 108% to the rest of the world in the same period.
- Daily NAFTA trade in 2006 reached $2.4 billion.
- U.S. manufacturing output rose 63% from 1993-2006, compared to an increase of 37% from 1980-1993.
ConclusionWhile NAFTA's overall financial impact has been generally positive, it has not lived up to the high expectations of its proponents. It has made many
U.S. companies and investors rich - and their managements richer. But it has also cost many
U.S. manufacturing workers their livelihoods while failing to raise living standards for most Mexicans. Any major market changes not dictated by market forces usually lead to both opportunity and loss, and this has happened with NAFTA.
6 comments:
The North American Free Trade Agreement also known as NAFTA would be considered a regulation of trading between large company investments with in the US,Canada, Mexico all around the world who were struggling economically. NAFTA has both positive and negative outcomes but still has changed the way business has been potrayed since 1993. Nafta increased the needs for factories which lead to the process of importing and exporting goods shipments on agricultural goods. It incrresed in oil exports which factories are basically functioned on. Immagrants migrated especially from Mexico due to the minimum wage in the US was better then the low wage they suffered from in Mexico, but unfortunately NAFTA helped protect the hardship and cruelty happening in companies. NAFTA encouraged cheap labors which gave a huge inflation in middle class, but helped with workers compensation. NAFTA would of been better if it was more organized!
The North American Free Trade is not as great as some may assume. Even though is sounds like a great idea to let countries trade with one another, some problems may arrise from NAFTA. With NAFTA at a working progress the idea of allowing under acievers to work hard labor for little pay is not doing any good for anyone. These workers fail to realize that they are working hard hours and are not getting paid the amount they should be. On the other hand many workers are not getting these jobs because owners do not want to pay extra money. Having immagrants do the work means factory owners are recieving a lot of money in their pockets.
Although the NAFTA, North American Free Trade Agreement, had both its negative and positive affects, I believe that NAFTA is a bad thing. According to the article, because of NAFTA many Mexican workers were forced to live in overpopulated slums which were unsanitized and inhumane. NAFTA might have had a positive affect on Canada being that it did benefit the country economically but it didn't benefit Mexico or the workers. "These companies enhanced management performance-based compensation while putting downward pressure on production-worker wages and benefits, collective bargaining clout and available jobs, especially in manufacturing." Lowering workers wages is selfish, workers work hard for the money they earn and what they think is the right amount that they should receive is actually the wrong amount.
The North American Free Trade Agreement (NAFTA) i believe has had both positive and negative impact on the North American Continent specifically Canada,U.S and Mexico. NAFTA has increased the economy in these three countries by providing portable and freer trading rules that can make it easier for these countries to benefit from each other. i see it has both a good and bad thing. Is a good thing because it made exporting goods between these countries less hectic and easier. It also raised the middle class in Mexico which is also a good thing because, if the middle class is rising that means that the amount of poor people are actually decreasing. Which is good for a nations development. i see it as a bad thing because in the U.S more and more factory workers are losing their jobs everyday due to this cheap labour trade. Since the U.S gets cheap labour from Mexico and Canada the people living in the U.S are rather losing their jobs that means that most people will not be able to provide for their families. I think that NAFTA failed to reach expectation in Mexico because they were not able to manage it well. If u compare it to that of Canada eventhough statistics show that they made loses, it also shows how they gained imense increase from it. i think that NAFTA should re-evaluate its plan in Mexico and they will be able to make some great development like they did in the U.S and Canada :)
The North American free trade known as the NAFTA affected not only the United states but also the economy, companies and populations in both a negative and postive way. A positve effect is that the Mexican factories assembled parts into goods and shipped them to the United states. The maquiladoras was expected to become a large market but did not live up to expectations. the effects of NAFTA was mostly negative for mexico. Many of the NAFTA jobs went to asia. They worked cheap labor. And some jobs did remain in mexico. in conclusion the NAFTA did have some benifits but like everything else, it had its problems too.
Eventhough NAFTA's overall financial impact has been generally positive, it has not lived up to the high expectations of its proponents. It has made many U.S. companies and investors rich - and their managements richer. It cost america alot of money and it was good for the middle class but it had a big affect on mexicans.NAFTA was both a positive and a negative thing :]
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