Benefits and Downsides of Nafta for North America

Introduction

By January 1, 1989, the US-Canada Free Trade Agreement was passed and put into power, liberating trade between the two countries. By January 1, 1994, the North American Free Trade Agreement (NAFTA) was ratified and enforced, eliminating tax tariffs between the three regions of North America. The intent of this accord was to increase the amount of jobs and economic opportunities with more trade and to improve Mexico, US, and Canada’s economy. With NAFTA put into force, it sparked a political debate with many people questioning whether it is overall more beneficial or harmful to North America.

Benefits and Downsides of NAFTA for North America

Many political advantages resulted from NAFTA. Since tax tariffs were gone, trade tripled between the US, Mexico, and Canada, increasing the economic output. NAFTA played a crucial role in fostering economic integration among these countries, resulting in a more interconnected North American market. Additionally, NAFTA directly created approximately 5.4 million jobs, and with the booming increase in trade, the number increased to 17.7 million. Foreign direct investment (FDI) increased by over three times. According to an article titled "NAFTA Pros and Cons," “The U.S. increased FDI in Mexico from $15.2 billion in 1993 to $104.4 billion in 2012, and from $69.9 billion in Canada in 1993 to $352.9 billion in 2015. Mexico ramped up investment in the U.S. by 1283% over the same time period, while Canada's FDI increased by 911%” (NAFTA Pros and Cons, n.d.). Prices went down, benefiting consumers, and government spending, or bidding, was supported as well. There was an increase in competition, and due to the elimination of tariffs, oil, food, transportation, and other costs decreased. The US GDP (gross domestic product) also grew starting in 1992 due to NAFTA, which means more demand for imports from other regions.

NAFTA was criticized for presenting some major economic disadvantages. American jobs were destroyed, and wages were suppressed. Many industries moved their business from the US, where labor is very expensive, to Mexico, where labor is cheap. A majority of the industries were manufacturing companies. Approximately, a total of 682,900 jobs were transferred from the US to Mexico within 1994-2010. The trade deficits reached $97.2 billion. Industries that didn’t move to Mexico took advantage of the situation and used it as leverage against union organizing drives. Workers didn’t have much trade authority without the union’s support, and wages weren’t able to grow as a result. 64% to 71% of manufacturing industries used this threat. NAFTA also had a huge effect on Mexico.

Impact on Mexico

Mexican farmers couldn’t compete against the funded farm product products that came from the US, forcing 6.9 million farmers out of their jobs by 2007. Maquiladora workers, inexpensive Mexican laborers who assembled products for the US near the border, were exploited. Their labor rights were taken away, they could be forced to work over 12 hours a day, and women sometimes were forced to take a pregnancy test before applying. More fertilizers were being used by Mexican businesses as a result of the competitive pressure, and farmers expanded their property land. In Mexico, a total of $36 billion a year was lost to pollution, and 630,000 hectares a year were lost to deforestation. These downsides of NAFTA led to it being renegotiated and transformed into the United States-Mexico-Canada Agreement (USMCA) on September 30, 2018. To be put into power, each country’s legislature of North America must approve it.

Comparisons with Brexit

Many major politicians debate the controversial topics of NAFTA and whether its advantages outweigh its disadvantages. A solution may be to simply remove the accord, as it is debatable whether it did more good than harm ever since it was implemented in North America. This situation is related to Brexit within Britain. Brexit, which is a combination of the words “Britain” and “exit,” is the decision for Britain to break economic ties with the European Union (EU). The British have always questioned the benefits of becoming a part of the European nations since the topic came up. On June 23, 2016, a referendum was held to see whether Britain would remain or leave the EU.

With almost everyone in the United Kingdom voting, a majority of people voted to leave in support of Brexit, winning by 51.9% to 48.1%. The date that the UK is projected to leave the EU, which has been postponed twice by the bloc, is October 31, 2019. Despite Parliament rejecting her plan three times, British Prime Minister Theresa May continues to push in support of Brexit to give the British what they wish for and wants to leave the EU as soon as possible. Brexit is a major step for Britain, as Europe has provided it access to the Single Market and given it more trading power for 46 years. May’s goal is to fulfill the people’s popular desires. Although Brexit would cause Britain’s economy to slightly decline by about 4% to 5 within the next couple decades, it would end free movement and decrease immigration rates. Less migration of people means more job opportunities for the British.

With Brexit comes many political problems for the UK. Many political parties of Parliament are split in their opinions of Brexit, and the backstop arrangement presents a dilemma. The opposing parties, two being the Brexiteers and the pro-Remain, are divided on the topic of the draft withdrawal agreement. If Britain permanently leaves the EU in the end, a resolution would be to refrain from creating a hard border around Northern Ireland in order to keep the peace and maintain economic trade flow and travel paths between Ireland and Britain free.

Another solution would be to have another referendum to allow the EU more time to meet Britain’s desires. This way, Britain would remain within the EU, and damage to Europe and the UK would be limited. If NAFTA were to be removed from North America, potential problems could arise similar to those of the Brexit situation, and comparable solutions could be used. If countries become separated, hard borders, like walls, would be unnecessary to build, as it would only raise war and destroy the peace. If the nations of North America wished to remain united, then referendums could be held to satisfy a country’s needs.

Conclusion

NAFTA had both positive and negative effects on North America ever since it was introduced. It greatly increased trade between the US, Canada, and Mexico, but it caused a huge drop in jobs in both the US and Mexico. US wages decreased, and millions of Mexican farmers were put out of work. Mexico’s environment also took a major toll because of NAFTA. The downsides outweigh the benefits, as each country fared differently after the accord was put into power. A solution would be to ultimately remove NAFTA for the whole of North America to all equally thrive. The circumstances would be similar to Brexit in Britain, and related problems and resolutions would apply to both regions.

References

NAFTA Pros and Cons. (n.d.). Retrieved from https://www.thebalance.com/nafta-pros-and-cons-3306271

Brexit. (n.d.). In Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Brexit