North American Free Trade Agreement Benefits
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 9, 2022
North American Free Trade Agreement Benefits
In 1994, the United States, Mexico and Canada entered into the North American Free Trade
Agreement (NAFTA) to encourage trade among the three nations. NAFTA is the largest trading
block of its kind, encompassing over 444 million people and $17 trillion of goods and services.
The American Chamber of Commerce calls the agreement a massive success, pointing out that
from 1993 to 2007, trade of goods between the three countries rose from $293 billion to $909
billion. NAFTA has been successful in promoting growth in a number of areas.
Manufacturing
NAFTA has allowed the three countries to take advantage of niches and specialize in those
areas. In practical terms, Canada may produce nickel at a mine in Ontario and export the raw
metal to California, where engineers need the element for new battery technologies. The high-
tech components are built in California and sent to Mexico for assembly into a finished product.
From raw materials to finished product, NAFTA opens doors and allows the three nations to
remain competitive on the world market.
Jobs
NAFTA has created a vibrant employment marketplace that allows each country to use the
strength of the agreement to bolster existing talent and set the stage for future job growth. As
Mexico's economy grows due to an increase in manufacturing and assembly positions, the
country requires skilled laborers, high-tech equipment and training that the U.S. and Canada
can supply. This sharing of knowledge increases employment opportunities across the
continent.
Less Expensive Goods
A number of NAFTA benefits drive the cost of consumer goods down in all three countries. The
creation of a single trade area allows companies to achieve much better economies of scale. A
Canadian manufacturer of appliances now has access to a much larger marketplace, which
drives the cost down. Cross-border manufacturing also reduces the cost of a product, directly
impacting its price. Similarly, with crops and livestock now easily transported across borders
without tariffs, consumers benefit from less expensive foods.
Agriculture
Agriculture has seen tremendous gains for all parties under NAFTA. American exports of
agricultural products to Canada and Mexico have increased dramatically since NAFTA came into
force, and now account for over 30 percent of all exports. The U.S. Department of Agriculture
has determined that Mexico and Canada, along with China, are the largest consumers of
American agricultural products, far outpacing other nations. NAFTA has resulted in overall
growth in exports from all three countries, with each benefiting from increased exports of their
core agricultural products.
Environmental and Social Impacts of Free Trade
Free trade is the idea of trade without restrictions--no tariffs, duties or other governmental
taxes on imports and exports. It also means allowing goods to free flow irrespective of their
quality and specifications. In essence, countries themselves are free trade zones. In
international free-trade, the European Union is a great example of a free-trade zone. When the
barriers to trade drop, among other things, it has dramatic social and economic impacts on
ethics, pocketbooks and job security.
Fuel
In a free trade environment, goods from anywhere can go anywhere. So, in the end, more
things are moving to more places. While this can have very positive effects on consumer choice
and prices, it means that there is more transportation involved--which burns more fuel and
therefore impacts air pollution. For example, if a consumer in France used to have only one kind
of local lettuce, but now, under the EU, can choose among five kinds of lettuces from five
different countries, a lot more fuel is being burned per French salad. Because of rising emissions
related to agricultural and food transport, the EU is considering taxes on emissions and freight
related to food transport to deal with the growing environmental impact.
Labor Conditions
When trade between countries at different levels of economic development occurs, there can
be serious impacts. For example, Mexico, Canada and the United States are part of the North
American Free Trade Agreement. In many cases, Mexico can produce manufactured goods,
such as clothing, at cheaper prices than the U.S. or Canada because of its lower labor costs.
However, factories are not always safe for workers, wages can be below poverty level--and
there may be cases of child labor. Buying these cheaper products may support these social
ailments. Others argue that purchasing products from Mexico may have negative social impacts
in the short-run, but because the trade fuels Mexico's economic development, the purchases
may, in the end, help Mexico get past these social problems. In return, unrestricted competition
with countries whose material and labor costs are lower than the United States' costs can have
adverse social ramifications. It can lead to the weakening of labor unions and even
retrenchment of jobs in industries that were previously protected by tariffs, duties and other
import restrictions.
Resources
The ability to trade freely can help a country greatly increase its wealth. At the same time, the
country may, in turn, deplete its natural resources. Natural resources can be the primary and
most valuable export in many countries. A few examples include Saudi Arabia and oil, South
Africa and diamonds, and Brazil and lumber. According American University, Brazil's lumber
exports equal five percent of the world's supply and are significantly responsible for the
deforestation of the Amazon. Fewer constraints on trade may lead countries to tap into more
of these precious resources.
The McKinley Tariff Act of 1890, sponsored by William McKinley, a Republican Senator
from Ohio, increased the tariffs on manufactured goods to as high as 49 percent. The Act
passed with the understanding that Republicans would support the Sherman Silver Purchase
Act. This Act allowed the Treasury to purchase the gold and silver output of mines in exchange
for notes redeemable in silver or gold.
Impact on Farmers
The McKinley Tariff Act hurt American farmers by raising the price of farm equipment and
failing to address descending agricultural prices. At the time American agricultural produce was
inexpensive as farmers faced minimal competition from imports. Higher tariffs coerced farmers
into purchasing protected and expensive products from American manufacturers while selling
products in markets that were competitive and unprotected.
Impact on Trade
The Blaine-Harrison reciprocity provision was included in the McKinley Tariff Act. The Tariff
essentially provided the president with the ability to manipulate rates in terms of foreign
markets; he was able to reduce tariffs on foreign products if other nations reduced tariffs for
U.S. goods. Secretary of State James G. Blaine sought to take advantage of the president’s
bargaining power. A supporter of expanding trade into Latin American, he assembled the Pan
American Congress of 1889. Blaine considered the reciprocity provision as a means to gain
access to Latin American products and markets. The McKinley reciprocity provision is credited
with being a pioneering effort to widen American trade.
Impact on American People
The tariff increased costs for all Americans in terms of purchasing power and wages. Many
items that came from abroad became pricier than local products; overseas products that
remained less expensive than local goods still rose in price in relation to local products. This
change meant that Americans required higher compensation to compensate for decreased
purchasing power and increased expenses. The escalated price of labor subsequently led to
mounting costs to produce local goods.
Impact on Hawaii
In 1875 Secretary Hamilton Fish sponsored a reciprocity treat with Hawaii. This treaty
backed Hawaiian sugar and subsequently the white planters owned the majority of sugar
plantations. The McKinley Tariff Act opened the American market to overseas sugar and
therefore contributed to a decline in the Hawaiian economy. The troubled Hawaiian economy
created political issues between supporters of the Queen and planters. Although whites gained
control in 1893, President Grover Cleveland rescinded an impending annexation treaty.
Impact to Republican Party
The Republican Party controlled Congress when the McKinley Tariff Act passed. The
passage of this wildly unpopular Act, however, led to massive Republican defeat in the
subsequent House and Senate elections. In 1892 voters reaffirmed their displeasure at the
polls, reports the U.S. House of Representatives. Republican President Benjamin Harrison lost
re-election to Cleveland.
