Country Trading: The U.S. and Mexico - Assignment Example

Country Trading: The U.S. and Mexico al Affiliation Country Trading: The U.S. and Mexico In relation to international trade, Mexico is ranked as the third largest in the United States in terms of volume traded between borders from China, Canada, and it is the second largest supplier of petroleum. The United States on the other hand, is the largest partner in Mexico and the largest foreign investor. The borders between the two states are the most economically chief borders internationally with relatively one million legitimate travelers and nearly a billion dollars worth of goods legally traded across borders (Weintraub, 2010). Border States are not the only trading relations between the two countries, but rather a total of 22 states in the United States have Mexico as the number one or second destination for their exports. The trading relation between the United States and Mexico has several merits and demerits on the perspective of the United States. Reasons for trading with Mexico The United States, mainly trade with Mexico on the intermediate inputs that are used to finish U.S. products. The economic integration of the US and Mexico economies has led to the establishment of a cross-border production system that boost the competition between the two countries. In other words, the Mexico and the United States conduct more businesses just over a month as the United States does with the European Union countries combined in a year (Violante, 2006). It, therefore, means that the interaction is fundamental for sustainability of the United States economy. The United States and Mexico are in different economic situations, which provide markets for products produced in the United States. The US is an industrialized nation that specializes, among other things, for exports of capital goods including steel, motor vehicles, industrial machinery, timber and aluminum. Mexico, on the other hand, is a low-income economy, which is growing, and needs capital goods to widen its infrastructure and to fabricate the consumer goods that it then exports to foreign markets including the United States (Mexico & United States, 2012). In this perspective, Mexico provides a market for capital goods manufactured in the United States. Since the United States is capital-intensive country, most of the products it produces are capital goods. It seeks market from other countries, including Mexico, for it to obtain enough funds to finance its imports of consumer goods. Mexico produces consumer goods, it, therefore, avails in the market enough consumer goods to quench the U.S. needs. Conversely, almost 80% of agricultural imports come from the U.S. and have an annual growth rate of almost 8% per year since the enactment of NAFTA (Mexico & United States, 2011). Mexico’s culture and economy are changing rapidly and the United States can take the advantage presented. Mexico has become the key manufacturing hub for electronics such as flat screen TVs, aerospace parts and medical devices. It is becoming an open market and the government has passed several bills that allow privatization of major industries including the oil industry to foreign investors. It is a good investment ground for the United States investors, which, therefore, boost the US economic prospects (Weintraub, 2010). Trade is beneficial to the United States since both countries have different production capacities of goods. The United States has an absolute advantage in the production of different goods (capital and labor goods). It means that the U.S. has a comparative advantage since it has a lower opportunity cost of producing such products. Trade increases the competitiveness in both production and the market. To the United States, trade helps in developing efficient and effective means of production to ensure the economy is cost efficient. Such efficiency helps in developing and shaping products. U.S. export to Mexico has quadrupled over the past 10 years and Mexico is now the third largest market for the United States exports. The U.S imports from Mexico, on the other hand, too often wrongly portrayed as justification of U.S (Mexico & United States, 2009). Decline or profligacy has facilitated the United States’ industries and companies that need access to lower-cost labor for economic viability to be established, to blossom and to ignite the introduction of new industries and products. Free trade area countries, including Mexico purchased more than 40% of the U.S. exports. Imports from Mexico among other countries, have helped extend families’ budgets and reduces the cost of production for the United States business. The United States rely on inputs such as raw materials and intermediate products including cheap labor from Mexico. In retrospect, the United States’ agricultural exports sustain relatively a million jobs in the United States. Manufactured and agricultural imports have made life’s conveniences and necessities more affordable to hundreds of millions of Americans. Mexico’s imports support millions of U.S. jobs in research, design, retail, transportation, marketing, sales, and sourcing. In fact, the trade relations between the United States and Mexico to improve the economic viability of many Americans. The relation increases the economic potentials between the two countries whose exploitation leads to better living standards of citizens (Violante, 2006). Americans have exploited these economic potentials since they are endowed with capital goods. To this end, the living standard of Americans has improved as a result of the interaction. Reasons against U.S. trade with Mexico Through NAFTA, the economic relation with Mexico definitely hurt family farmers among other infant industries at the expense of efficiency. It favors the interests of agribusiness corporations over the needs of the family farmer. NAFTA’s model of export-oriented agriculture has slashed farmer’s income. To be precise, between 1995 and 2004, the prices that U.S. farmers receive for corn decline by 33%, 42% for wheat and 34% for soybeans (Mexico & United States, 2012). According to various researches, the agreement went into effect 33000 small farmers in the United States go out of business, more than six times the pre-NAFTA rate (Violante, 2006). U.S. – Mexico trade has led to privatization of essential services. The FTA signed between the United States and Mexico has forced privatization of services such as energy, water, healthcare, and education. Privatization harms working class communities and communities of color. Some studies suggest that the relation jeopardized the consumer and environmental protections. America’s relationships with Mexico relating to immigration, trade and counternarcotics operations have affected the United States socially and economically. The U.S. is the Mexican drug cartels’ best consumers facilitated by the trade between their borders. It has led to the introduction, trade and consumption of illegal products including drugs, which is affecting the social and economic structure in the United States. Researches point out that 87% of cocaine penetrates the United State through the Mexican border and the drug cartels fabricate 80% of the crystal meth traded in America, a huge amount of marijuana and 14% of the heroin on the American market originate from Mexico (Mexico & United States, 2009). Mexico dumps goods in the U.S, which keep the imports out giving protectionists ammunition-battling task against free trade. According to trade agreement and current laws in the U.S, dumping is illegal. Mexico exercises dumping since the government provides incentives and subsidize its local industries to encourage exports and discourage imports in the home country. If it were not a government intervention, to enforce protectionism in 2001, steel industry in the United States could be replaced with host foreign industries especially from Mexico. The agricultural industry in the U.S. thrives as a result of government subsidization that enables the industry to remain competitive in the foreign market. Although Mexico is a low labor cost country, industries in the United States may not benefit from this economic opportunity. The enactment of the trade relation agreement called NAFTA made corporations move high-paying jobs to countries, including Mexico, with lower wages and bust unionization thereby threatening production in such countries (Violante, 2006). Recommendation Trade along the United States and Mexico borders has generated more social and economic values of Americans than the harms. As demonstrated above, the economic interaction has led to the creation of harmonious political, economic and socio-cultural relations between the two countries. The two countries do not have much contrasting or conflicting culture, which has facilitated for continued interactions. The U.S. and Mexico should continue to trade between each other with goods that they have a comparative advantage (Weintraub, 2010). The economy and social structure in Mexico are changing which is providing future and sustainability of economic prospects for U.S. investors. Such interaction helps to solve most of its micro and macro economic problems, including the unemployment and balance of trade deficits. The bilateral economic affiliation with Mexico is the main interest to the U.S. because of Mexico’s proximity, the strong economic and cultural ties between Mexico and U.S. and high volume of trade with Mexico. The advantages of U.S. trading with Mexico includes; mainstreaming the production capacities, improve the living standard of Americans through employment, increases the nation’s GDP and provide markets for its products amid others. Among the demerits of such trade relation include the introduction of illegal products, collapse of farmers and infant industries, privatization of major industries and jeopardize the environmental and consumer protections to name but a few. References Mexico, & United States (2011). Trade: Agreement between the United States of America and Mexico; signed at Washington, January 17, 2006, with annex. Washington, D.C.: U.S. Dept. of State. Mexico, & United States (2009). Trade: Understanding between the United States of America and Mexico. Washington, D.C: Dept. of State. Mexico, & United States (2012). Trade: Customs cooperation: agreement between the United States of America and Mexico, signed at Davos, January 26, 2007. Washington, D.C.: U.S. Dept. of State. Violante, A. (2006). Trade liberalization between Mexico and the United States. United States. Weintraub, S. (2010). Free trade between Mexico and the United States?. Washington, D.C: Brookings Institution. Read More