Running Head: US TARIFFS AND THE NORTH AMERICAN FREE TRADE AGREEMENT 1

Us Tariffs and the North American Free Trade Agreement

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US TARIFFS AND THE NORTH AMERICAN FREE TRADE AGREEMENT 2

Wall Street Journal Article Assignment

Current event Assignment

US tariffs and the North American Free Trade Agreement

Introduction

North American Free Trade Agreement (NAFTA) is free trade agreement which includes

the USA, Canada, and Mexico. The agreement was put into effect on January 1, 1994. The goal

of the agreement was to create free trade within North America. NAFTA removed tariffs and

other barriers to create the world's largest free trade market. NAFTA also promotes the exchange

of goods between the countries. NAFTA has come under debate since its creation about the

advantages and impediments of its impacts on issues, for example, the US work market and

shortfall in exchange with Mexico. This article covers various focuses on the positives and

negatives of NAFTA while analyzing President Trump's argument. It additionally raises various

instances of how organizations used NAFTA.

Discussion of Course Concepts:

President Trump has two primary arguments against the North American Free Trade

Agreement, which are the trade deficit with Mexico and negative impacts on US job market.

Originally one goal of NAFTA was to decrease immigration from Mexico. Once NAFTA was

implemented there was statistically a decrease of immigration from Mexico. However, there is

still a large percent of Latin America’s citizens immigrating to the US. Another reason why

NAFTA was considered a good idea back in ’94 was that it promoted free trade within the

nations. The free trade agreements allowed the countries to have the richest market in the world

(Mcbride and Mohammed, 2017). An example of free trade within NAFTA is fruit grown in
US TARIFFS AND THE NORTH AMERICAN FREE TRADE AGREEMENT 3

Mexico will be priced the same as one grown in its home country. Through NAFTA the nations

have experienced strong economic growth due to, “Tariffs were eliminated progressively and all

duties and quantitative restrictions, with the exception of those on a limited number of

agricultural products traded with Canada, were eliminated by 2008”. President Trumps' argument

is that some economic integration consequences of the US leaving NAFTA would be higher

tariffs. If the US pulls and raises tariffs on the NAFTA members they in return will place the

same tariffs if not higher. As an effect this will hit hard on everyone's economy, and in a negative

way; “New U.S. tariffs on imports from Canada and Mexico could increase to an average of 3.5

percent. For new trade barriers facing U.S. exporters, Canada’s import tariffs would increase to

4.2 percent and Mexico’s would increase to 7.5 percent”

Mexico has the absolute advantage in labor costs compared to the US and that not only

takes away jobs but also lowers wage growth in communities. In small towns where factories are

a major source of jobs the removal of that factory can lead to a huge downturn in the town’s

economy as well as suppress wage growth. In a study by John McLaren, an economist from the

University of Virginia, he said “A high-school dropout living in an apparel and footwear

dependent small town in South Carolina, even if she is employed in the non-traded sector such as

in a diner where she would appear to be immune to trade shocks, would see substantially lower

wage growth,” the paper says (Tangel, 2017). This represents the idea of neo-mercantilism,

which is the idea that imports can be bad for the economy. Economists do not all attribute all of

the loss of jobs to NAFTA and cheaper labor but also to the increase in Japanese and Chinese

imports and the advancement of technology. With automation for cars and other mechanical jobs

becoming more available, companies normally choose to make the investment in the technology

and lay off workers expecting a long-term return.

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Overall a majority of economists still say that NAFTA has had an overall positive effect

on the economy. It grew the economy by approximately 0.5% adding $80 billion to the US

economy and a large amount of jobs that are created pay 15% to 20% more than the lost jobs.

Economists also look at the improved relations between Mexico and the US as a huge advantage.

Even with some positive outcomes the question is whether the good of the overall economy

outweighs the negatives to the job market. NAFTA was also designed to lower the amount of

illegal immigrants that cross over the border in to the US but it has failed to do so. That change

was expected to happen with increased wages in Mexico but that has yet to happen. Although

that does not mean that NAFTA was a complete failure on that front. Bradford DeLong, a

professor at the University of California Berkeley, said, “Without NAFTA the migration would

have been even greater (Uchitelle, 2007). For instance, he says, there would not have been as

much investment in the north of the country.

All of these positives and negatives is why President Trump is forming this political

argument for intervention. With the large number of affordable infrastructure factor endowments

in Mexico, which are the quantity and quality of resources such as labor there will be a large

backlash by companies if he decides to change things. With the rise in other factors that can hurt

the job market like technology it will be difficult to convince companies that coming back to

America for manufacturing that it will be more cost efficient, especially factories that have to do

with the auto industry. Currently Trump is talking about renegotiating with Mexico or pulling

out of NAFTA entirely, which could lead our economy in an entirely new direction. If tariffs go

back up then companies will pull out of Mexico and either go overseas somewhere else or back

to the US.
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Reference:

Mcbride, James, and Mohammed Aly Sergie, (07 Feb. 2017) "NAFTA's Economic Impact."

Council on Foreign Relations. Council on Foreign Relations, n.d. Web.

<http://www.cfr.org/trade/naftas-economic-impact/p15790>.

Tangel, Andrew, Valerie Bauerlein, and Jacob M. Schlesinger, (27 Jan. 2017) “Nafta's Net U.S.

Impact Is Modest." The Wall Street Journal. Dow Jones & Company. Web. 06 Feb. 2017.

<https://www.wsj.com/articles/naftas-overall-u-s-impact-is-modest-1485469689>.

Uchitelle, Louis,(17 Feb. 2007) "Nafta Should Have Stopped Illegal Immigration, Right?" The

New York Times. The New York Times. Web. 07 Feb. 2017.

<http://www.nytimes.com/2007/02/18/weekinreview/18uchitelle.html>.