International Trade and NAFTA - Research Paper Example

International Trade and NAFTA Introduction: International trade is the exchange of goods and services among differentcountries in order to fulfill the required demands. Not most of the countries are self sufficient to produce all products to carry out the required demands for living, and hence most of the countries need to export and import products to meet up their needs. With the help of modern techniques, up to date procedures, contemporary practices, globalization and highly advanced transportation system the International trade system is spreading very fast all over the world. NAFTA stands for “North American Free Trade Agreement”, NAFTA first began in 1994 on January 1st. The salient aim behind NAFTA was to make trade and investment easier and more accessible between United States, Canada and Mexico. Under NAFTA, all duties and trade restriction barriers were removed between United States, Canada and Mexico. NAFTA is well-known for encouraging free trade. United states trade representatives argues that “NAFTA is the worlds largest free trade area, which now links 450 million people producing $17 trillion worth of goods and services.” Why is international Trade important? International trade is important for meeting the needs of the countries which they themselves cannot meet up while being in their own homeland. Not many countries can produce all that they want. So in order to meet their needs and demands the trade takes place. No matter how developed the country is, there are always products which many other countries produced and are considered comparatively economic. In order to maximize usage of minimum resources most of the countries import those certain products. Those certain products are produced at lower marginal cost in order to minimize cost and maximize profit without damaging their budget which is known as the “Comparative Advantage”. Advantages of International trade: Given below are some advantages of the international trade: 1. International trade can benefit the economy of the country by expanding the local market and increasing the variety of the goods and services available. 2. No country is self sufficient and can’t produce all that it needs hence it is necessary for countries to indulge in International trade to meet up their living needs and demands 3. International trade is the basic source of bringing “FOREX” in the country. 4. It helps to built up strong bond between many countries which further leads to friendship. 5. Trade often increases competition and it helps in reducing monopolistic prices and the cons which are engender from certain aim. It encourages local investors and manufactures to perform better and keep stable prices in the market 6. The countries can take much more benefit from Comparative Advantage through International trade 7. International trade is one of the major sources of revenue for countries. By doing more exports and less imports the countries can actually achieve economic stability 8. International trade can help reduce local dependence on the existing companies 9. International trade can even help stabilize seasonal market fluctuations Disadvantages of International Trade: International trade revolves around many Disadvantages as well which are given below: 1. International Trade can sometimes increase your expenses for Example, in certain cases you will have to hire additional staff for the procedure of import and export 2. Can result in trade deficit (negative balance in balance of trade) this takes place when there are more imports and comparatively less exports 3. In certain cases create conflicts between two countries 4. In case of exporting/importing goods it increases the additional cost of Packaging and traveling 5. In certain cases discourage the local manufactures and prove to be unjust for them. For example, a local manufacturer produced 500 shirts and they are available in market for $ 40 each, where as someone imported 500 shirts and the marginal cost of each shirt was lesser than the local manufacturer because of Comparative Advantage and hence the imported shirts are available for $ 30 each in the market. Because of this the local manufacturer will face great loss and might get discouraged. 6. Create unemployment in the country, if you start importing more then there will be less industries, mills, and factories in the country this might result in unemployment 7. Increase dependency on other countries North American Free Trade Agreement ( NAFTA) NAFTA was created to make trade and investment easier and more accessible between United States, Canada and Mexico and to encourage free trade. Positive effects of NAFTA: Given below are some advantages of NAFTA : 1. One of the major positive effects of NAFTA was increase of trade between United States, Canada and México. United States trade representatives suggest that “Exports from the U.S. to Canada and Mexico grew from $142 billion to $452 billion. Exports from Canada and Mexico to the U.S. increased from $151 billion to $568 billion” one the of the reasons the trade could possibly increase was the cooperation of all countries among each other, their mutual agreement of removing trade and investment barriers. 2. NAFTA helped reducing oil and grocery prices between United States, Canada and Mexico. 3. Created friendly relationship between United States, Canada and Mexico. 4. Helped United States, Canada and Mexico attain economic stability by increasing trade. 5. helped united states, Canada and Mexico attain variety in goods and services in their local market 6. Set an example for the rest of the world by creating the largest free trade act. 7. NAFTA created trade surplus in services Kimberly Amadeo suggests that “More than 40% of U.S. GDP is services, such as financial services and health care. These arent easily transported, so being able to export them to nearby countries is important. NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to $106.8 billion in 2007 (latest data available). Service exports were $40 billion.” Adverse or negative effects of NAFTA Given below are some certain adverse or negative effects of NAFTA : 1. United states faced the issue of unemployment, since labor in Mexico is cheaper than US many manufacturing companies in US started hiring labor from Mexico and certain companies moved to Mexico because of cheaper labor another adverse effect was Not all companies from US moved to Mexico some of them just decreased the wages of the labor in US by following the foot step of those who moved to Mexico. 2. Maquiladora workers were being exploited by the US companies 3. The local investors/ manufacturers of each country suffered 4. Mexican environment was getting disturbed by NAFTA Conclusion: There are pros and cons of everything, but countries should use appropriate measures and suitable techniques to reduce any sort of uncertainty in international trade and avail maximum benefit from it by avoiding exploitation of rules and regulations and by adopting ethical means. References : 1. Graz, J.-C. (January 01, 1999). The political economy of international trade: The relevance of the International Trade Organization Project. Journal of International Relations and Development, 2, 3, 288-306. 2. Antrobus, P. (January 01, 2002). Women, globalization and international trade. Canadian Woman Studies, 21. 3. Arbitral Awards (ICSID) Bayview Irrigation District et al. v. Mexico (NAFTA), 19 June 2007. (January 01, 2007). World Trade and Arbitration Materials, 19, 5, 5-30. 4. Grugel, J., & Piper, N. (January 01, 2011). Global governance, economic migration and the difficulties of social activism. International Sociology, 26, 4, 435-454. Fernández-Kelly, M. P., Shefner, J., & American Academy of Political and Social Science. (2007). NAFTA and beyond: Alternative perspectives in the study of global trade and development. Los Angeles: SAGE Publications. Read More