The North Americam Free Trade Agreement Essay

The North Americam Free Trade Agreement Essay, Research Paper

Since the birth of this great nation in 1776, the United States has remained a dominant world power in many aspects. The American standard of living has been the envy of the world, powered by an economy rivaled by nearly no one. Our economy continues to be the rock with which the global economy can lean on, as evidenced by nations that rely on huge reserves of the dollar because of its stability as a means of settling international debts. Unfortuneatly, despite the solidity that our economy is so often associated with, we have accumulated a 5 trillion dollar (that’s 9 zeros) national debt. Something has to be done about this colossal problem to ensure that the United States retains its status as a world power in the global economy. One vital catalyst to help promote growth and neutralize the massive account deficit and foreign debts is the North American Free Trade Agreement. NAFTA, for short, is one positive effort that not surprisingly, has met with the opposition of many. In light of this opposition, it is evident that NAFTA is accomplishing its primary goals and encouraging the growth of the American economy.

NAFTA negotiations began on June 11, 1990 when former President George Bush and Mexican President Carlos Salinas de Gurtari met to discuss the possibility of revising current trade policies. The thing that set the NAFTA apart from other trade agreements historically was that it was to be the first trade agreement entered into between two industrial countries and a developing country. By much of the world the NAFTA is often viewed upon as North America’s answer to the European trading bloc. Many provisions of the NAFTA take their roots in the Canada-U.S. Free Trade Agreement which became operational January 1, 1989. A target objective was to create free trade between the United States, Mexico, and Canada rather than a comprehensive economic union such as that of the European Community. Whereas the EC dealt with monetary exchange rate issues by implementing a standard in currency called the “Euro-Currency”, the NAFTA would be off limits to such control. Like many issues today, this topic was hotly debated. Many people vehemently argued that job loss and low wages would plague the United States and Canada inflicting more damage on these two already struggling economies. The pro-NAFTA big business sector reportedly coughed up between 20 and 30 million dollars for lobbying. This seems to make sense considering that 86% of the companies listed on Fortune magazine’s top 500 list has operations in Mexico. With the support of current president, Bill Clinton, the NAFTA passed through Congress late in 1993.

The 2,000 page NAFTA plan details many things, one of the most important clauses being the reduction of tariffs. Over the next 15 years all internal tariffs will be reduced to zero for trade amongst the United States, Canada, and Mexico. Tariffs on “sensitive” goods such as agricultural products that require a longer adjustment period will remain in place for the full 15 years, while being subjected to incremental decreases each year. All in all there are 4 tariff classes, quite cleverly lettered A, B, C, and C+, to be reduced to zero eventually. Tariffs for the “A” class were void as of January 1, 1994. The “B” category will diminish at a rate of 20% for five years, the “C” class at a rate of 10% a year for 10 years, and finally the “C+” category which will stretch tariff reductions out over the full 15 years. Other than tariffs, NAFTA also eliminates things such as the costly need to convert drivers as merchandise rolls over the borders of a neighboring country.

What all of this could do for the United States is quite clear. The most important objective is to improve the efficiency and productivity of the member countries to more effectively compete against foreign suppliers at home and abroad. The NAFTA imparts an export-led growth strategy to help solve the United States’ account deficits. The premise behind the whole thing is quite simple. Once our nation experiences the expected increase in productivity, which in turn forces prices down, exports would ultimately increase. NAFTA will undoubtedly contribute to economic growth in Mexico, which will also increase the demand for U.S. goods and services in our neighbor to the South. A prosperous Mexico, which is already this country’s third largest trading partner, would become a thriving market for U.S. exports. Another promising goal of the NAFTA is the amount of jobs it will create, not lose, in the American workforce.

According to the book North American Free Trade, U.S. jobs are assumed to be created at the rate of 14.5 thousand new jobs per billion dollars of net improvement in the U.S. trade balance. The employment impact of the NAFTA will vary across the country but never be too significant in one area. It seems that the rationale of the typical NAFTA critic is that a wave of American jobs will be lost as companies make a run for the border or imports flood our market. This is not the case. It is estimated that perhaps 100,000 American jobs will be lost over the next 10 years due to NAFTA. Naturally, workers will be needed to fill all the jobs in our booming export sectors and the government is prepared to retrain these individuals to succeed in areas of the workforce such as this. If anything, the burden will fall primarily