Focus of the Article
Burfisher, Robinson, and Thierfelder asserted that the effects of Nafta were positive for the U.S. economy. They had to clarify that statement though by adding that although NAFTA was overall a good thing for the U.S. economy the said positive impact was relatively small. On the other hand the impact of NAFTA to the Mexican economy was huge. The authors cited data taken from different sectors such as from agriculture, auto and textile industry, as well as its impact on the U.S. trade balance and U.S. labor markets.
The authors also attempted to refute what critics said regarding the negative effects of NAFTA on the U.S. economy. One of the major areas of concern was the labor markets. Critics raised the alarm regarding the probability that U.S. workers will never be able to compete against low wages workers and the surge of Mexican imports will force American companies to lay-off employees.
This means that as cheap Mexican products flood the U.S. market it can displace domestic production and instead of establishing factories and creating jobs it would be a lot cheaper if the U.S. will simply buy what they needed from Mexico.
The surge of imports can also happen both ways, cheap American produce can also flood the Mexican market. For instance the Mexican corn sector is heavily subsidized by the government and when cheaper U.S. corn is allowed to come in then this sector will collapse and as a result Mexican workers will opt to migrate and therefore the U.S. will face the problem of illegal immigrants encroaching in U.S. border states.
Empirical Evidence
Burfisher, Robinson, and Thierfelder proved their claim by stating figures taken from the Congressional Budge Office (1993). The said agency made forecasts such as the prediction that the Mexican economy will increase between 6 to 12 percent after the implementation of NAFTA.
But at the same time the budget office made a contrasting claim that the U.S. economy will only grow abut one fourth of one percent as a result of the NAFTA. This is the result of differences in trade dependence and tariff structure between the United States and Mexico. It was pointed out that Mexico’s exports comprised a mere 10 percent of the overall U.S. imports and exports numbers, while Mexico is heavily dependent on imports coming from the United States.
The authors also highlighted the fact that U.S. GDP fell from 1990 to 1991 and yet it began to climb in 1992, the same period that NAFTA was in effect. They also used data from various studies that shows the negligible impact of trade liberalization on the U.S. job markets. They said that between the year 1990 to 1997 there is an estimated job loss of 37,000 per year but countered with another statistic that says the U.S. economy has been creating 200,000 jobs every single month and therefore the impact of NAFTA is negligible.
There were also positive reports when it comes to growth in agriculture, the auto industry, and even improvements in the textile industry. It seems that the authors were saying that the overall positive impact exceeded expectations. However, analysts must take a closer look at the empirical evidence used by Burfisher, Robinson, and Thierfelder because one can easily observe an overdependence on forecasts and calculations based on simulations and not actual data taken from different industry sectors.
Implications
There are so many issues that are not clear even to the authors. This simply means that the study on the impact of trade liberalization is not a simple task. It is a complicated process because there are so many factors to consider. The challenge is multiplied many times over if researchers are asked to look at the impact a trade liberalizing agreement on two countries. The macroeconomic levels alone can be an overwhelming component of the study and will require considerable time and effort from researchers.
The difficulty in capturing the overall impact of NAFTA on both countries and then present in quantitative data to be understood by all is evident in this statement: “A multitude of models and analyses were carried out at various levels of aggregation, ranging from industry and sectoral studies done in partial equilibrium framework to a number of studies using single and multi-country computable general equilibrium models (Burfisher, Robinson, and Thierfelder, p.126). Nevertheless, the information gleaned from these forecasts revealed that trade agreements between two countries does not always spell success.
This has a major impact on how people will come to understand the international economy, especially when it comes to liberalizing trade. In other words it is not that simple. There are so many things to consider and the data may not be conclusive until it is already too late. The authors were not able to take a closer look at the impact of NAFTA when all the restrictions were taken out and zero tariffs is implemented on all products.
Another thing that they did not include in the study is the impact of a strong U.S. economy. There is a need to find out what kind of numbers can be generated if the simulation models are given numbers from low consumer spending, high unemployment rate, lackluster investor confidence, and the elimination of jobs not only from the ones mentioned in the study but also from other sectors.
Works Cited
Burfisher, Mary, Sherman Robinson, and Karen Thierfelder. The Impact of NAFTA on the
United States. The Journal of Economic Perspectives. 15(1): Winter, 2001, pp.125-144.