International Trade Administration of North America - Term Paper Example

International Trade Administration of North America with Canada and Mexico Introduction The range of challenges in the advanced economies have shaken the growth of the global economy and it affected the United States and they cannot fully escape the bang. The natural disaster that shocked Japan played a significant role in getting the economy down. Because of the slow production and due to the shortage of parts the automobile industry experienced a great slowdown during the time (Clement et al., 1999). According to the International Monetary Fund, the economy of Japan constricted to 0.9 percent in 2009. Europe and America also faced the same slowdown in the economic growth and which also affected the growth of their emerging markets (Lenain, et al., 2012). When we look at the old pattern where how the US economy works, that is, the population also grows along with US economy, the job fulfilment is reached. When we check the business-peak cycle from January 1980 to July 1990 we can observe the total U.S employment grow by 151,000 net new payroll jobs in a month. And it increased at a rate of 178,000 at the business- peak cycle from July 1991 to March 2001, but around the turn of millennium the situation began to change in U.S. than before (Lenain, et al., 2012). Due to the weak employment growth in the beginning of the millennium the economy fell into recession and began to shed jobs at the end of 2008 and this lasted till the president signed the American recovery and reinvestment act. The recession made a large and continuing negative impact on the state and local governments, however with the help of recovery act and by the payroll tax cut and unemployment insurance extensions contained in the tax relief, unemployment insurance reauthorisation and job creation act of 2010, the U.S. economy had added jobs in every month from February 2010 (Lenain, et al., 2012). Economy of North America The economy of whole North America includes 528 million people in its 23 sovereign states and 15 dependent territories. It is marked by a sharp division between predominantly English speaking countries of Canada and united states , which are among the wealthiest and most developed nations in the world, and the countries in central America and Caribbean the less developed. Mexico lies in between this two extremes as a newly industrialised country and is a part of North American free trade agreement and a member of organisation for economic cooperation and development. The United States is the largest economy in North America and the largest national economy in the world (Clement, et al., 1999). The U.S, Canada and Mexico have significant and multifaceted economic systems. Canada’s economic trends are similar to that of United States, with significant growth in the sectors of services, mining and manufacturing. Canada’s GDP was estimated as $39,400 in 2010. Canada’s service sector comprises 78% of country’s GDP; industry comprises 205 and agriculture 2% (Jarret, 2012). Mexico has a GDP of $13,900, and per capita income is estimated as one third of the United States. The country has both modern and outdated industrial and agricultural facilities and operations and modernising in sectors such as energy production, telecommunications and airports (Jarret, 2012). The great depression of North America began in 1929. The start is often dated to the stock market collapse of Black Tuesday although this was not the cause of the depression. Canada and United States experienced especially large declines, with gross domestic falling 37% from 1929 to 1933 in United States (Lenain, et al., 2012). Trade Administration with Mexico The economy of Mexico is the 13th largest in the world in nominal terms and the 11th by purchasing power parity, according to the World Bank. Since the 1994 crisis, administrations have improved the country's macroeconomic fundamentals. Mexico was not significantly influenced by the recent 2002 South American crisis and maintained positive, although low, rates of growth after a brief period of stagnation in 2001 (Lenain, et al.,2012). However, Mexico was one of the Latin American nations that was most affected by the 2008 recession with its Gross Domestic Product contracting by more than 6%. Moody’s (in March 2000) and Fitch IBCA (in January 2002) issued investment-grade ratings for Mexico's sovereign debt. Even though there is relative economic tranquillity that has helped to check the rate of inflation as well as the interest rates, there are still very large gaps between the haves and the have-nots. There is a clear cut economic status divide between the city dwellers and the people that hail from the rural areas of the country. Some of the government's challenges include the upgrade of infrastructure, the modernization of the tax system and labour laws, and the reduction of income inequality (Lenain, et al., 2012). The economy is based mainly on the private and public industries and service sectors that have been on a steady growth in the past decade. The new crop of leaders have inspired completion of important infrastructure like ports, electricity generation, railways construction, airports as well as the distribution of natural gas. As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTAs) with more than 40 countries, including the European Union, Japan, Israel, and much of Central and South America. The most influential FTA is the North American Free Trade Agreement (NAFTA), which came into effect in 1994, and was signed in 1992 by the governments of the United States, Canada and Mexico (Clement, et al., 1999). In 2006, trade with Mexico's two northern partners accounted for almost 90% of its exports and 55% of its imports. Recently, the Congress of the Union approved important tax, pension and judicial reforms, and reform to the oil industry is currently being debated. According to the Forbes Global 2000 list of the world's largest companies in 2008, Mexico had 16 companies in the list (Lenain, et al., 2012).Mexico's labour force is 78 million. One of the reasons that the unprecedented growth has been realized is because of the hard working population. According to the OECD, Mexicans are some of the hardest working people on the planet. Mexico is enjoying a very fast paced economic comeback, with an impressive GDP growth of 5.5% recorded in the year 2010 and 4.5% recorded in the next year (Lenain, et al.,2012). The growth in exports is projected to slow down considerably even after the remarkable come back in 2010. However, there is a strong demand domestically which will help to ensure recovery remains on the right track. Export growth is expected to slow after the exceptional rebound of 2010, but stronger domestic demand should keep the recovery on track. Even though the unemployment rates are not decreasing as would have been expected amidst the growth, quite a number of market indicators have improved considerably. Mexico has already started to take back the fiscal stimulus package that was introduced in 2009 and increased taxation with the main aim of cushioning the market from the worries of unpredictable fiscal activity. If this comeback goes on as projected, the government might as well choose to fully roll out the plans it has in decreasing the deficit in the budgetary allocation by imposing restraints on expenditure (Lenain, et al.,2012). Mexico’s informal sector, which is large by OECD standards, is a drag on productivity growth. Firms in the informal sector lack access to credit, training and legal protection – so they do not innovate and remain small. Better education and improved regulation are very foundational reforms that are needed to war against informality. The government might want to keep in with the strategies to cut down on the costs of not only beginning but also maintaining a business. It should embark on strengthening the much needed social security package in order to safe guard the interests of the low-income workers, while at the same time seeking ways to limit the costs by putting in place mechanisms aimed at increasing efficiency (Lenain, et al.,2012). Supportive Monetary Policy Fiscal consolidation is already underway. After conducting a fiscal stimulus in 2009, the government began making the fiscal policy tighter by increasing taxation in a bid to curb the expenditure growth. The impact of this is that public sector had a reduced borrowing requirement of 4.5% in 2010 which was down from the earlier 5% in the earlier year. It is the strategy of the government to limit the growth of expenditure as well as curb on the borrowing requirement to attain a 3% in 2011 and 2.5% in 2012. This would ultimately translate into a gaping the difference in 2012 according to the definition of the government, a definition that includes a number of related financial operations but does not put PEMEX into account. If the recovery unfolds as projected, the government should implement its consolidation plans in full to avoid eroding market confidence in Mexico’s fiscal policy. Current low interest rates are helpful to support the recovery in domestic demand in the event that the stimulus package is withdrawn. It is therefore not far-fetched to expect some inflation in the short term (Lenain, et al., 2012). Main Indicators As at the latest 2012 estimates, Mexico has a GDP (Gross Domestic product) of approximately US $1,748.908 billion and a PPP (Purchasing Power Parity) of and $1,231.64 billion. In addition to this, the country has an estimated standard of living of approximately US $15,782.897. According to the World Bank report of 1999, Mexico has the second highest gross national income in the entire of Latin America. Things have not changed much since the exchange rate has remained fairly stable since 1998 oscillating from 10.20 and 11 per USD (Clement, et al., 1999). The underemployment rates have also remained at a minimal 25 percent which makes it to have the highest employment rate in the OECD region. The human development index for the country is estimated to be approximately 0.829 which puts the country a position 52 in the entire world among the countries that are developing greatly (Lenain, et al., 2012). Engineering and Design The success and rapid growth of the Mexican electronics sector is driven primarily by the relatively low cost of manufacturing and design in Mexico; its strategic position as a major consumer electronics market coupled with its proximity to both the large North American and South American markets whom Mexico shares free trade agreements with; government support in the form of low business taxes, simplified access to loans and capital for both foreign multinational and domestic start-up tech based firms; and a very large pool of highly skilled, educated labour across all sectors of the tech industry (Clement, et al., 1999). There are almost half a million (451,000) students enrolled in electronics engineering programs with an additional 114,000 electronics engineers entering the Mexican workforce each year and Mexico had over half a million (580,000) certified electronic engineering professionals employed in 2007.From the late 1990s the Mexican electronics industry began to shift away from simple line assembly to more advanced work such as research, design, and also the production of various hi-tech electronics like the LCDs, PCBs, semiconductors, chipsets, microelectronics, microprocessors, as well as bulky electronic equipment for industrial use (Lenain, et al., 2012). In the year 2006, Mexican engineer grandaunts were way more than those produced by the expansive USA. Many Korean, Japanese and American appliances sold in the US are actually of Mexican design and origin but sold under the OEM's client names.  In 2008 one out of every four consumer appliances sold in the United States was of Mexican design (Lenain, et al., 2012). Trade administration with Canada The financial system withstood the worldwide economic crisis thanks to an appropriate macroeconomic response and a firm banking sector. The newest indicators propose that the economy is picking up, and the attitude is for continued reasonable output growth and inflation in 2012 -2013. However, record low mortgage rates have pushed house prices rise considerably in some cities, and increased household indebtedness, which poses an increasing danger. Boosting innovation can lift traditionally weak output growth to maintain living standards. Competitive pressures which urge innovation have lately intensified because of the high exchange rates, but additional market opening in sheltered sectors like network industries and professional services would be helpful (Jarret, 2012). Improvements in regional education will also be significant to support socially inclusive expansion in a knowledge-driven economy. While the tertiary system usually performs well, generating high achievement among the working age people, contribution at the tertiary level will need to carry on growing to uphold the supply of highly skilled labour as the population ages. Further improving equity of access by reducing non financial barriers and increasing targeted need based financial assistance – funded by reduced education tax credits where public systems are guarded. Canada enjoys strong institutions and policy trustworthiness, but for many years its economic development has relied mostly on mounting labour and capital inputs. By contrast growth of multifactor output has been weak and declined further in the past decade. Innovation indicators such as business R&D and patenting rates are meagre. The overarching subject of this survey is recuperating the policy structure for innovation, counting in particular by strengthening the role of the tertiary education sector The Canadian economy recovered from the 2008-09 global economic crisis relatively quickly thanks to timely financial and economic stimulus, a sound financial system and high goods prices. Unemployment has fallen considerably since the recession pinnacle and is now near its long term average rate as well as OECD estimates of its structural rates and real business investment and corporate profit margins have restored to pre- crisis level. To hold up the economic improvement, the bank of Canada has suitably maintained a highly accommodative position by keeping its policy rate at 1.0% since September 2010. While the bank has indicated that some modest withdrawal of the present monetary stimulus may become suitable, the prolonged period of low interest rates raises concerns about the risks it presents for the financial system. The stance of monetary policy in the quarters ahead will have to balance the relatively strong cyclical position of the Canadian economy, compared to the United States and most of Europe, and the income effects of the favourable terms of trade against the predominance of downside risks, to activity in the short term resulting from fiscal consolidation and strong dollar. This balance of risks, in a context of moderate inflation and apparently well anchored inflation expectations, suggest that now policy can afford to remain supportive of activity. References Clement, C. N. et al., (1999). North American integration. Theory and practice. Cheltenham, Edward Elgar Publishing Limited Clement, C. N. et al., (1999). International trade and finance. In North American integration, theory and practice (129-169). Cheltenham, Edward Elgar Publishing Limited Clement, C. N. et al., (1999). Jobs And Income: Today And Tomorrow. In North American integration, theory and practice (163-195). Cheltenham, Edward Elgar Publishing Limited Jarret, P. (2012). OECD economic surveys Canada June 2012 overview. Retrived from Lenain, P. et al., (2012). OECD economic surveys Mexico. June 2012 overview Retrieved from Lenain, P. et al., (2012). OECD economic surveys United States. June 2012 overview. Retrieved from Read More