North American Free Trade Agreement - Research Paper Example

On January 1994 the United s, Canada, and Mexico signed a trilateral free trade agreement called NAFTA. Due to the globalization movement these three nations realized that by working together they can improve the trade of goods among the participating nations. One of the first benefits on NAFTA was the elimination of the majority of tariffs that each nation imposed on each other. Lower tariffs benefit the end user of the goods and services because it leads to lower prices. Tariffs are considered a trade barrier that whose purpose is to limit the amount of imports that come into a country (Meti).

The NAFTA agreement helped the three countries increased the amount of trade activity among themselves. “Trade between the NAFTA signatories tripled, from $297 billion in 1993 to $1 trillion in 2007” (Amadeo, 2011). One of the industries in the United States that benefited the most from the agreement was the farming industry due to the fact that Mexico used to have extremely high tariffs on agricultural products. Some of the crops that have increased in demand for exporting in the United States include beef, rice, soybeans and beans.

The NAFTA agreement created the biggest free trade area in the world connecting three economies that generated over $17 trillion annually (Amadeo, 2011). The service industry received a major boost in demand since NAFTA was signed. Some of the industries that have benefited from the agreement are healthcare and financial services. The prices of food have reduced as a consequence of the NAFTA agreement. Another benefit that Canada and Mexico received from the agreement was an increase in foreign direct investment (FDI) from the United States.

The volume of foreign direct investment has more than tripled since the inception of the agreement. Despite a lot of the advantages of NAFTA the agreement also had some negative aspects. In the United States the manufacturing industry was negatively impacted as job creation in manufacturing became stagnant. The cheaper Mexican labor became an attractive proposition for many American investors. The United States has one of the highest labor costs in the world. Another negative aspect of the agreement was movement of criminals across the borders.

The drug trade and the cartels in Mexico gained power due to the facility of movement of people and drug across the borders. Some sectors of the agricultural economy of Mexico have been negatively impacted by the imports of vegetables and fruits from Canada and the United States. Many agricultural products in Mexico used to be protected by tariffs. The NAFTA has negative impacted the trade deficit of the United States due to the fact that the U.S. is importing more goods than it has exported as a consequence of NAFTA.

In 2009 the total exports of the United States to Mexico and Canada amounted to $397 billion, while its exports total $438 billion (Ustr). That year the trade deficit of the United States increased by $41 billion due to the trade activity associated with NAFTA. ReferencesAmadeo, K. (2011). Advantages of NAFTA. Retrieved November 30, 2011 from http://useconomy.about.com/od/tradepolicy/p/NAFTA_Advantage.htm Meti.go.jp. Chapter 4: Tariffs. Retrieved November 30, 2011 from http://www.meti.go.jp/english/report/downloadfiles/gCT0004e.pdf Ustr.gov.

North American Free Trade Agreement. Retrieved November 30, 2011 from http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta