Trading across national borders is a critical component of doing any business. When exchanging goods, scholars argue that many factors are taken into account. In the past, trade between the United States, Mexico, and Canada has been unevenly distributed. The hefty tariffs on U.S. exports to Mexico are causing market imbalances. In today’s global economy, tariffs are a common occurrence. American-produced goods were taxed at a higher rate than Mexican goods transported to the United States. To fulfil the needs of either state, treaties and accords were drafted and signed. As a result, the North American Free Trade Agreement (NAFTA) was born. The main of its formation was to make North America more competitive in the global marketplace, reduce costs and increase investments. Therefore, the paper seeks to examine the formation of NAFTA, its effect on the world market, and its challenges.
The Trade and Tariff Act of 1984 paved the way for bilateral trade agreements between the United States, Canada, and Mexico in the 1980s. According to Article 102 of the NAFTA agreement, the signatories (the nations that signed it) will be accorded “most-favoured-nation” status, reducing trade barriers and enabling a cross-border flow of products and services, encouraging fair competition, and expanding investment opportunities. Under the terms of the agreement, member countries’ intellectual property rights will be secured and upheld. Establishing instruments to settle trade difficulties established the groundwork for future trilateral, regional, and multilateral collaborations. As a result of the agreement, the region’s largest free trade zones in terms of GDP were established. The agreement fulfilled its purposes, and all the member states benefitted.
The establishment of maquiladora businesses provides job opportunities for nationals of the member countries. The growth and diversity of maquiladoras have accelerated dramatically since NAFTA. U.S. companies invested in Mexican maquiladoras to take advantage of cheap Mexican labour. They dominated Mexico, leading to huge profits and an overall increase in U.S. revenues (Vojáková, 2018). On the other hand, Mexican exports gained access to the United States and Canada markets as a result of the free flow of products and services inside the bloc, thus balancing the three member states. NAFTA established high tech industries, to name just a few, energy industries, motor and textile industries. The aim was to produce goods using cheap labour and gain maximum profit for the member countries. The products produced by the member states were exported to the global world market at higher prices. Due to a surge in the establishment of industries in the Mexican region bordering the U.S., the prices of the products began rising due to an increase in demand vs. a decrease in labour supply.
Those opposed to NAFTA began to fear that the union would soon disintegrate, claiming that the agreement lacked mechanisms to ensure its long-term stability. As a result, several manufacturing industries in the U.S. closed, and others began to fall due to the high cost of production. The affected industries had no options of getting inexpensive labour from other countries like Asia and Africa. The NAFTA agreement’s rules and conditions buffered the introduction of other members into the treaty. The aim was to maintain the monopoly of the global market. Other countries became interested in weakening NAFTA’s monopoly. China, which had previously been an economically stable country, manufactured more cheap commodities incorporating Mexican works and flooded the market with cost-effective products. People in Latin America, such as Brazil, claimed that subsidizing the industrial processes of the United States’ members was unfair.
When Barack Obama ran for president in 2008, HE attacked NAFTA from every angle. President Barack Obama blamed it for the increase in unemployment. Businesses, he contended, enjoyed the benefits at the expense of U.S. workers. Furthermore, it failed to offer enough safeguards against misuse of both employees and the environment (Alschner, Sanford-Walsh, & Skougarevski, 2018). Throughout the 2012 presidential campaign, Obama, Ryan, and the rest of the field discussed NAFTA regularly. Trump and Clinton fought fiercely throughout the 2016 election. In reaction to criticism of the pact, President Trump launched NAFTA renegotiations in 2017 after other industries had reported it to the World Trade Organization (WTO). Opponents in the United States focused on NAFTA’s first six significant problems, which included the loss of U.S. jobs, wage suppression, worker exploitation in Maquiladoras, the closure of Mexican farms, and the lack of adequate environmental protections in Mexico, exposing the Mexican population to hazardous conditions and causing long-term effects on the ozone layer.
President Trump threatened to exclude Canada when he signed a bilateral trade agreement with Mexico on August 27, 2018. Canada joined the accord on September 30, 2018 after seeing the benefits firsthand. The three countries signed the agreement on November 30, 2018. The legislatures have approved all three countries’ United States, Mexico, and Canada (USMCA) accord. Mexico ratified the USMCA on June 19, 2019. As of January 29, 2020, the United States and Canada had ratified the treaty. The US-Mexico trade deficit was a priority for the Trump administration. The pact aims to change NAFTA in six areas, including requiring automakers to manufacture at least 75% of a car’s components in the USMCA trading zone or face higher tariffs (Macdonald. (2020). Efforts to reform NAFTA began on July 1, 2020, when the three countries signed the treaty.
Alschner, W., Panford-Walsh, R., & Skougarevskiy, D. (2018). What can the negotiations of NAFTA 1.0 teach us about the fate of NAFTA 2.0?. Ottawa Faculty of Law Working Paper, (2018-05).
Macdonald, L. (2020). Stronger together? Canada-Mexico relations and the NAFTA re negotiations. Canadian Foreign Policy Journal, 26(2), 152-166.
Vojáková, E. (2018). An Analysis of the Trade Relations between the United States of America and Canada and the Importance of NAFTA (Doctoral dissertation, Empire State College).