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Impact of Nafta on Us, Mexico and Canada

In: Business and Management

Submitted By varanjot
Words 1064
Pages 5
1.!Why did the US, Mexico, and Canada sign the North American Free Trade Agreement?
Which sectors would you expect to gain most from this agreement?
NAFTA allowed for the free flow of goods and services between the three parties, US,
Mexico and Canada by immediate or phased elimination of tariffs on numerous goods. This free trade would in turn lead to comparative advantage i.e. each country could specialize in producing goods/ services in which they are relatively more productive than their trading partners, increasing overall productivity and output. Hence, the parties to NAFTA signed the agreement so that companies can leverage aggregating and arbitration opportunities within the region leading to overall more trade, more jobs and higher GDP. On the side, the countries also hoped for some other interrelated non-economic benefits such as reduction in illegal immigrants from Mexico to US due to availability of more earning opportunities within
Mexico.
The sectors which were expected to gain most from this agreement were- automobiles (in
Canada), textile and apparel (in Mexico), agriculture (in all countries, particularly US), financial and banking services (in US) and energy (especially in US and Canada).
2.!Has NAFTA been beneficial for the countries that signed it?
There were numerous positive economic developments after the signing of NAFTA such as:
•! Increase in international trade: Mexico’s trade as a % of GDP almost doubled after the
NAFTA agreement, new trade was generated due to arbitrage opportunities in agriculture
(e.g. increase in US imports of fruits and vegetables from Mexico and increase Mexico’s imports of corn from US).
•! Increase in FDI: 3X increase in FDI in Mexico within 10 years.
•! Increase in labor productivity: Significant increase in labor productivity for all the parties- US (~1.7% CAGR), Canada (~1.7% CAGR) and…...

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