What If Nafta Goes Away? Pg 136-137 Case Study

What If Nafta Goes Away Pg136 7 3 Questions Pg 137case Studies Mu

What if NAFTA goes Away? pg. Questions pg. 137) Case studies must be typed, single-spaced and 1-2 pages long (minimum of words), not recapping the case history or repeating the material in the case. Answer the case study questions in the textbook (p. 137) one by one. Bullet points are acceptable as long as they are accompanied by a relevant explanation. Discussion Questions 1. Because the three NAFTA member countries had been trading for ages before NAFTA, what are the benefits of an FTA such as NAFTA? 2. ON ETHICS: Pick your role as (1) a consumer, (2) a manufacturing worker, or (3) a banker in one member country. What has NAFTA done to help or hurt you and your community? 3. Pick a firm from your state or country that is active in at least two (preferably three) member countries via trade and investment. How does it prepare for the scenario that NAFTA benefits are curtailed? EMERGING MARKETS/ETHICAL DILEMMA Closing Case: What If NAFTA Goes Away? In effect since 1994, the North American Free Trade Agreement (NAFTA) has no shortage of controversies. As Trump has assumed power, the criticisms against NAFTA, potentially culminating in its repeal, force us to entertain a previously unthinkable scenario: What happens if NAFTA goes away? The answer to this question obviously boils down to what NAFTA has brought to the United States. In two decades, trilateral merchandise trade among three member countries grew from $290 billion in 1993 to $1.1 trillion in 2016—a nearly fourfold increase. Approximately $3 billion goods and services cross the border every day—an astonishing $2 million every minute. US trade with Canada tripled and US trade with Mexico increased by five times—while US trade with the rest of the world grew 280%. Canada and Mexico are, respectively, the second and third largest exporters to the United States (China is the first). Canada and Mexico are, respectively, the first and second largest importers of US goods. Mexico alone imports more US goods than China, and absorbs more US imports than Britain, France, and Germany combined. Canada imports even more "Made in USA" goods. What about jobs? In brief, no “giant sucking sound” has been heard. Approximately 300,000 US jobs—an average of 15,000 per year—were lost due to NAFTA in its first two decades, but about 100,000 jobs were added. The net loss was small, as the US economy generated at least 25 million new jobs during the same period. In 2015, the Congressional Research Service acknowledged some worker and firm adjustment costs brought by NAFTA. But overall, it reported conclusively that “NAFTA did not cause the huge job losses feared by the critics.” At present some eight million US jobs depend on trade with Canada and another six million on trade with Mexico. Even for every job lost, the economy gains $450,000 in the form of higher productivity and lower consumer prices, which benefit all. But a hard count on jobs misses another subtle but important benefit. NAFTA has allowed US firms to preserve more US jobs, because 40% of the value of US imports from Mexico and 25% from Canada is actually made in USA—in comparison, only 10% of the value of US imports from China is made in USA. In 1994, US imports from Mexico only contained 5% of the value made in USA. Clearly NAFTA has facilitated seamless supply chain integration, with goods, components, and parts crossing the border multiple times to be eventually assembled in one member country. Without NAFTA, entire industries may be lost rather than just the labor- intensive portions. So what if NAFTA goes away? First, relax: not all the benefits discussed above will be lost. As an institutional framework, NAFTA merely represents some relatively new rules of the game that are man-made and artificial. Given their natural geographic proximity and historical links, the three North American neighbors had been trading for ages before 1994. Their tightly knit economies cannot and will not immediately stop trading. In a hypothetical post-NAFTA era, these three economies will still gain by trading, but the gains will be smaller. Americans and Canadians can still enjoy plenty of yummy avocadoes from Mexico (the world’s top avocado producer), but they will have to cough up more money for their beloved guacamole. Second, if the Trump administration unilaterally imposes high import tariffs, Canada and Mexico will certainly respond in kind. Given the reality of NAFTA supply chain, a tariff is like erecting a wall in the middle of a factory. Hard-fought export market share in Canada and Mexico will shrink. Thousands of jobs in manufacturing, logistics, and other services will disappear. For example, the Center for Automotive Research estimated that a 35% tariff on vehicles imported from Mexico, which would contain 40% “Made in USA” parts, would result in the loss of 31,000 US jobs. Third, because both Canada and Mexico have free trade agreements (FTAs) with the EU, the US withdrawal from NAFTA will significantly help increase EU firms’ market share there. In other words, EU firms, propelled by their own FTAs with Canada and Mexico, will be delighted to take over the market share vacated by US firms. Beyond those from the EU, strong competitors from China, Japan, and Korea, despite having no help from FTAs, will be elbowing their way into Canada and Mexico. In other words, reducing the preferential treatments (especially low or zero tariffs) enjoyed by US firms under NAFTA will clip their wings in the competition for export markets in Canada and Mexico. Ironically, gutting NAFTA will help enhance the competitiveness of America’s global rivals. Finally, shutting down NAFTA does not bring back a large number of manufacturing jobs to the United States. The recent crises facing US manufacturing jobs, falling from 17 million to 11 million between 2000 and 2010, have little to do with NAFTA. Instead, competition with China and technological changes have largely contributed to such a decline. Therefore, blaming Mexico and dismantling a beneficial FTA do not solve the problems associated with manufacturing job losses. There is widespread belief that Trump’s nasty rhetoric on NAFTA is just “talk.” Procedurally, Trump is required to seek congressional approval if he merely wants to renegotiate NAFTA. Congress is unlikely to support a policy to throw away so many benefits and to spark retaliatory trade sanctions in America’s top two export markets—with so little gains. While NAFTA is not a panacea and has its problems, dismantling it would be “lunacy,” according to Texas Monthly. In summary, NAFTA is unlikely to be gone completely. But renegotiation is certainly possible.

Paper For Above instruction

NAFTA, or the North American Free Trade Agreement, has been a cornerstone of economic integration among the United States, Canada, and Mexico since its enactment in 1994. This agreement has significantly shaped trade patterns, economic growth, and employment dynamics within North America. Considering the hypothetical scenario where NAFTA is abolished, it is critical to analyze the potential economic, social, and strategic impacts on the member countries. The benefits of an FTA like NAFTA encompass increased trade volumes, economic growth, job creation in certain sectors, and the promotion of supply chain efficiencies, which collectively foster a more competitive regional economy.

Before NAFTA, the three countries maintained robust bilateral trade relations; however, the agreement amplified these relations through comprehensive tariff reductions, removal of non-tariff barriers, and the establishment of dispute resolution mechanisms. As a result, exports among Canada, Mexico, and the U.S. soared—from $290 billion in 1993 to over $1.1 trillion in 2016—highlighting the economic benefits conferred by the agreement. It also facilitated the integration of supply chains, especially in manufacturing and automotive industries, enabling components to traverse borders multiple times before final assembly—an advantage that significantly lowered production costs and boosted competitiveness.

From an ethical standpoint, the effects of NAFTA on individuals vary based on their roles. For a manufacturing worker in Mexico, NAFTA may have initially meant job opportunities due to increased foreign investment. Conversely, some U.S. manufacturing workers faced job losses as companies offshore production to capitalize on lower wages in Mexico. As consumers, Americans benefited from lower prices and wider availability of goods, but some communities faced economic decline and increased inequality. For bankers in Canada, NAFTA's financial provisions and dispute resolution mechanisms improved cross-border investment opportunities, fostering regional financial stability and growth.

If NAFTA benefits are curtailed or the agreement is abolished, the economic landscape would undergo substantial shifts. Reduced trade flows could lead to higher consumer prices, diminished export opportunities, and potential job losses, especially in manufacturing sectors tightly integrated within North American supply chains. Industries such as automotive and electronics, which rely heavily on just-in-time delivery of components, could suffer significant disruptions, leading to increased production costs and reduced competitiveness globally.

For firms actively engaged in the North American market, strategic preparedness becomes essential. Companies with diversified markets and flexible supply chains are better positioned to mitigate the adverse effects. Firms from regions with existing free trade agreements, such as those in the European Union or Asia, may seize new market opportunities as U.S. firms face reduced access to Canadian and Mexican markets. Importantly, the transition might stimulate diversification — encouraging companies to explore new markets, innovate, and adapt supply chain structures to sustain profitability. In summary, while the benefits of NAFTA have been profound, the Potential curtailment or demise of the agreement would demand strategic agility from businesses, and social adjustments for affected workers and communities.

References

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• Bown, C. P. (2019). US-China Trade War and Its Effects on Global Value Chains. Peterson Institute for International Economics.
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