Renegotiating NAFTA Case Essay

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RENEGOTIATING THE NAFTA

STUDY GUIDE FOR PROBLEM DIAGNOSIS SCENARIO CASES

What problems does the case describe?

The case describes the problems that NAFTA faced after the renegotiation of the trade deal among the North American countries. The trade deficit is one of the problems highlighted in the case but also whether or not the new deal is a better choice.

What problem will help your diagnosis the problem and its causes?

The questions include;

· How did the trade deficit come to be?

· Did the trade deficit increase after NAFTA came into use?

· Will the new trade deal solve the old problems?

· How long will it be until the effects of USMCA begin to show?

Can you identify concepts or frameworks that can be useful for identifying and proving the causes?

The concepts include;

· Trader barriers

· Free Trade areas

· Trade deficit

· Foreign country trade relationship

Diagnosis of NAFTA’s poor performance

Problem cause One: Shifting of companies to Mexico

Facts	How cause connects to the problem	Short-term steps	Long-term steps
After the NAFTA agreement came into effect, various business shifted to Mexico from the United States of America in pursuit of the cheap labor	Shifting of companies to Mexico from the U.S.A is a negative trend in the American economy, which is one of the problems of NAFTA.	Tax exemptions on companies so that they can lower their cost of operation	Come up with laws that protect American companies from foreign companies that have low cost of operations.

Problem Cause Two: Low prices for the American products

Facts	How cause connects to the problem	Short-term steps	Long-term steps
After the NAFTA came into practice, the American companies had to lower the prices for their goods because there were goods of the same use that originated from Mexico with low prices	The cause connects to the problem since the American products could not fetch good process in the North American Free Trade Area because Mexico had the same products with the same quality but at a lower price.	The short term step is to continue selling the products in the market with prices that are relatively high with hope that consumers will choose American products.	The long term step is to renegotiate the trade deal to ensure that American products are not subjected to price discrimination.

Problem Cause Three: Trade relationship with other countries

Facts	How cause connects to the problem	Short-term steps	Long-term steps
After the NAFTA deal, there were bumps in the road. Research was coming out about the pros and cons of the deal for each country. Citizens and politicians did not like what they saw.	This new information raised skepticism of whether or not NAFTA was really beneficial for all 3 countries rather than just one.	Realizing the problem and deciding to renegotiate. These talks on renegotiation did take place during many months/years.	USMCA is the new deal and now all there is left to do ensure accurate communication is happening within the 3 countries.

Ready to take a position

What is the problem?

The problem in this case is that production cost in the United States of American is high which makes operation cost of companies to be high.

What are the major causes?

The major causes of the trade deficit are the high labor and production costs.

Writing about a problem-diagnosis case scenario

Definition of the problem	The problem is huge trade deficit between U.S and Mexico
Summary of major causes	The major causes are high costs of production and labor in U.S.A
Criteria 1
a. Low production cost in Mexico	After the NAFTA agreement started, companies migrated to Mexico from the United States of America to Mexico to pursue the low cost of production./
Criteria 2
a. Low cost of labor	Mexico has a high population that is not employed hence they provide a huge pool of labor that is not expensive when compared to the United States of America.
Criteria 3
a. Unstable trading relationships between countries	Mexico and the U.S both got into altercations during the middle and end years of the NAFTA trade deal that might have impacted keeping the deal open.

Action plan

High level goals

· Creating the best possible trading plan

Short term

· Improving the saving and encouraging reduced consumption culture among the American households

· Assuring that the new deal will be more beneficial to the American people

Long term

· Depreciating the exchange rates

· Increasing the tax capital inflows

· Update the plan if necessary

· Solve any emerging problems

Major risks:

· Depreciating the exchange rates may cripple the American business that relies on imports since it makes imports expensive.

· Increasing tax on capital inflow may reduce the quality of services since American government borrows to finance certain services offered to Americans.

· USMCA may bring unforeseen problems

Risk mitigation

The government can rely on federal reserves to provide quality services to Americans when the tax on capital inflow is increased. Planning accordingly for any potential problems will help us be prepared for them. Doing the necessary research will also help prevent some issues.