The Pros And Cons Of NAFTA

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Introduction Free trade is a policy that lifts all trade tariffs and barriers and thus encouraging the free movement of goods (imports and exports) between nations. Agreements to free trade establish free markets where countries can engage in trade in a free and conducive environment. This type of trade is made possible by free trade agreements made between countries. According to the International Trade Administration, these agreements help minimize barriers to exports form the US, protect their interests as well as enhance the rule of law in member countries. NAFTA is one of such agreements. Free trade comes with its share of pros and cons. It is responsible for increased economic growth, better business environments, encourages investment …show more content…

Some of the consequences of free trade as seen in the case of NAFTA include outsourcing of jobs to other countries, crowding out of domestic industries, poor working conditions among others. NAFTA led to shifts in jobs and production to Mexico as a result of free trade (Villareal & Fergusson, 2015). It has also been blamed for stagnation of wages in the US because of people moving to work in Mexico and Canada and companies also moving there because of the low production costs. According to the centre for Economic and policy research, a surge of imports lead to the US loosing 600,000 jobs in only two decades (Villareal & Fergusson, 2015). In Mexico, the trade is estimated to have put two million workers out of work due to agriculture that is highly subsidized by the US. This then led to increased rates of immigration into the US as people searched for better means of living (Weisbrot et al, 2014). Canada did not suffer any extreme effects as result of NAFTA. However, the productivity gap between itself and the US economy was not closed because its labour productivity remained at 72% as that of US levels (Villareal & Fergusson, …show more content…

Figure 2: GDP of the US, Canada and Mexico after NAFTA (in billions of dollars). YEAR USA CANADA MEXICO 1992 $702.34 $592.40 $363.61 1994 $711.56 $578.14 $527.32 1996 $699.93 $628.59 $397.40 1998 $850.32 $631.81 $502.01 2000 $1,089 $742.90 $683.65 2002 $1,105 $758 $741.56 2004 $1,356 $1,023 $770.27 2006 $1,398 $1,315 $965.28 Source: Compiled from Centre for Economic Policy Report and International Trade Administration.

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