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The issue of NAFTA renegotiations is always prominent because of the varying demands of all the involved parties. The effect of the NAFTA deal is very different between countries. For example, the majority of imports into the United States are dependent on the lack of tariffs on their goods. The recent changes in the political regime brought a new approach to the renegotiation process on the part of the United States, which made them especially heated. However, they also brought upon the question of how much import into the United States really benefits the countries involved. This paper will examine the issues proposed by the article, as well as research the effect that NAFTA had on the economy of Mexico.
The article examines the final round of the North American Free-Trade Agreement renegotiations. Some of its main points are in the highly heated discussion between the representatives of Canada, the United States, and Mexico. The most controversial demands during this round of talks were proposed by the United States Trade Representative Robert Lighthizer. He proposed that the minimum amount of NAFTA-member goods in a vehicle to apply for the tariff-free pass should be raised from 62.5% to 85%. In addition, he demands that 50% of them should have American content. The article responds that this demand is based on faulty studies that do not represent how supply chains adapt to the export market. The article is bookended with a description of how a t-shirt salesman Mr. Flores is seeing this situation affect his business. By the end of the article, he begins to consider changing his exports to countries other than the United States.
The Effect of NAFTA on Mexican Economy
The idea that Mexican companies would start to pull out of exporting products into the United States is not that farfetched. This issue is closely related to how NAFTA affected Mexico. Despite the relatively positive effects that it provided to the country over the last two decades, the true effect on its economy is not completely beneficial. Studies show that the country’s economy mostly remained stagnant since the 1990s. The wages of employees and the poverty rate remained almost identical over 20 years, and the unemployment rate increased dramatically (Caliendo & Parro, 2015; Castañeda, 2014; Hakobyan & McLaren, 2016). However, these issues are not directly caused by NAFTA. While NAFTA was ineffective in boosting the Mexican economy, the larger issue stems from the lack of developmentalism economic policies that initially helped Mexico in the last century (Sánchez, Calderón, & León, 2018). Since NAFTA may not have a significant effect on Mexico, it is distinctly possible that its major exporters would be willing to change their focus on other countries in the region or across the ocean (Báez, Jedicka, & Brown, 2017).
The effect of NAFTA on the economy of the United States is significant. However, this success does not reflect on the economies of the other members. The increasing demands from the United States during the last round of renegotiations could have a highly negative effect on the agreement itself as both Canada and Mexico may have other strategies prepared in case it falls apart. The more unreasonable the demands are, the more likely the agreement dissolves, which would remove all of its benefits from the United States. Prices would inevitably rise as foreign companies would adjust them to meet the new tariffs, and competition would decrease due to this rise.
Báez, B. F., Jedicka, A., & Brown, E. (2017). After NAFTA: Institutional ways to create environmental assessment services and technological development in Mexico. Frontera Norte, 9(17), 23–31.
Caliendo, L., & Parro, F. (2015). Estimates of the trade and welfare effects of NAFTA. The Review of Economic Studies, 82(1), 1–44.
Castañeda, J. G. (2014). NAFTA’s mixed record: The view from Mexico. Foreign Affairs, 93(1), 134–141.
Hakobyan, S., & McLaren, J. (2016). Looking for local labor market effects of NAFTA. Review of Economics and Statistics, 98(4), 728–741.
Sánchez, J. C. R., Calderón, C., & León, S. S. (2018). Is NAFTA really advantageous for Mexico? The International Trade Journal, 32(1), 21–42.