NAFTA Renegotiation: Economic Analysis

This assignment delves into the complex economic ramifications of renegotiating the North American Free Trade Agreement (NAFTA). It requires students to analyze the potential effects on trade flows, investment patterns, and national welfare. Students should draw upon established trade theories, such as comparative advantage and Heckscher-Ohlin theory, to construct their arguments. Furthermore, empirical evidence from past trade agreements and NAFTA's history will be crucial in supporting their analysis.

THE CONSEQUENCES OF CANCELLING BILATERAL AND MULTILATERAL
TRADE AGREEMENTS IN FAVOR OF A PROTECTIONIST TRADE POLICY IN
UNITED STATES OF NORTH AMERICA

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Main body........................................................................................................................................3
United States of North America..................................................................................................3
Free Trade Agreement (North- American)..................................................................................4
Debate over the cancellation of bilateral and multilateral trade agreements...............................4
Consequences of decision on bilateral agreement in mid as well as long term...........................5
Consequences of decision on multilateral agreement in mid as well as long term.....................7
Future aspects of NAFTA..........................................................................................................10
References......................................................................................................................................12

INTRODUCTION
According to Picciotto (2016), trade agreement comprises a broad range including tax, tariff and
trade treaty and investment guarantees. Bilateral agreements are agreed between two countries
and multilateral countries are contracted between more than two countries. Presently, the
president of North America has proposed to cancel trade agreements in order to protectionist
trade policy. The below report present discussion and analysis on same topic. Further, a detail
assessment of mid-term and long-term consequences of the decision has been presented in detail.
Lastly, the overall impact of the decision has been concluded that necessity of renegotiating the
terms of trade is required in order to sustain the economic growth of United States of North
America (Aggarwal, 2013).
MAIN BODY
United States of North America
As per Cooper (2014), the US economy is a mixed economy which is highly developed as
compared to other countries. It is considered to be the largest economy of the world in terms of
its nominal GDP, and it is the second largest with regard to its purchasing power parity (PPP). In
2016, the U.S. GDP was anticipated to be $18.46 trillion (Villareal, 2017). The country has the
seventh-highest per capita GDP (nominal) in the world, and it is ranked as a country with the
eleventh-highest per capita GDP (PPP). The most used currency in international transactions is
the U.S. dollar. It is the world's leading reserve currency which is backed by science and
technology. The US government has a high probability to reimburse its debts. The economy has
played a central role in various international institutions since World War II. Many countries of
the world use US dollar as their official currency, and in many other countries, the currency
serves as de facto currency. The largest trading partners of the country are Mexico, China, Japan,
Canada, Germany, United Kingdom, South Korea, India, France and Taiwan. The economy is
boosted by the availability of plentiful natural resources, a well-developed infrastructure, and
high productivity. The country has second highest net estimated value of natural resources which
were valued at $45 trillion in 2016 (Komar, 2016). The Americans have the highest household
and employee income among other nations.

Free Trade Agreement (North- American)
According to the words of Moser (2014), free Trade agreement is usually contracted to
liberalize the terms and policies of trade and to boost the economic growth of the countries
indulged in the agreement. NAFTA which stands for North American Free Trade Agreement
is a 3rd country accord agreed by the Canadian, Mexican and US government that come into
existence in January 1994. Terms and conditions of NAFTA were regularly adopted by
January 2008, the same offered for the abolition of product traffic operated around these 3
countries (Rugman, 2017). Trade liberalization regarding textiles, manufacturing of
automobiles, agriculture was the main consideration. The agreement also required to
safeguard property and set-up dispute resolution system and via side deals, adopt labour and
environmental protection. NAFTA primarily restructured relations of the North American
economy, driving an exceptional incorporation among developed economy of US and
Canada, Mexico (developing country).
As per the words of Lester (2016), NAFTA took pleasure from the bipartisan backing, been
negotiated by the George H.W. Bush (President) and further approved it through Congress and
adopted by the President Bill Clinton of democracy. It promoted approximately thrice the local
trade and investments across the board among the 3 countries also developed considerably.
However, NAFTA remained at a constant target in the wider debate on the free trading. Donald
J. Trump (President) stated that the agreement had passed job, production and
manufacturing in the United States to Mexico. During August 2017 his management re-
opened Canadian and Mexican negotiations with the purpose of restructuring it (Caliendo,
2015).
Debate over the cancellation of bilateral and multilateral trade agreements
According to the views of Lim (2015), the NAFTA negotiations started in 1991, the objective of
these specified countries was the incorporation of Mexico with highly employed and developed
US and Canada economy. They believe that the free trading would pass more strong and steady
growth in the economy to Mexico, offering opportunities and work for increasing human
resource. For US and Canada, Mexico was considered to be a promising new market for
abroad selling, and reduced investment in cost location that ensure the U.S. and Canadian
competitiveness of companies. Although in 1998 the US finished an agreement of trade with

Canada, the integration of Mexico was extraordinary. Challengers of NAFTA take hold of
wage-difference with Mexico, having a per-capita income of 30% as compared to US
(Nevitte, 2017). Candidate of united state presidential (Ross Perot) put an argument in 1992
that liberalization of trade might result in a giant sucking sound of the jobs of United States
escaping all around the border. Followers such as Bush and Clinton opposed that the deal
will do several jobs in a year, at the same time President of Mexico (Salinas de Gortiari)
took it as an opportunity in order to modify the economy of Mexico. NAFTA conducted a
present age of local and bilateral FTA which means free trade agreements that thrived as the
WTO (World Trade Organization) worldwide trade negotiations have declined. The US
presently has free trade agreements which 20 countries, which is further approaching for key
regional agreement with Europe and Asia (Koch, 2017). NAFTA also established integration
of the provision of environment and labour in the agreements of trade in the United States,
and the provisions are becoming comprehensive after FTA.
As per the views of Reyes (2014), most of the Economists end up to an agreement that
NAFTA has offered several advantages to the economy of North America. Investment of
cross-border also flowed with the FDI stock of United States in Mexico rising since the era
from $15 billion to reach at $100 billion (Mansfield, 2016). Experts also stated that it is
evident that there is complexity to mock the effects of agreement of other factors, inclusive
of change in technology, expansion in trade with countries like China and irrelevant
development in domestic trade. The debate continued in relation to the legacy of NAFTA on
the wages and jobs, with some workforce and company suffering from painful disorders.
Consequences of decision on bilateral agreement in mid as well as long-term
According to the opinion of Bureau (2016), trade agreements are often regional and usually
evolve a small no. of countries. One of the major bilateral agreements which have been
negotiated in Western Hemisphere over past twelve year is Canada and United States Agreement
(CUSTA). Even other significant bilateral agreements exist which comprise agreement with
Mexico. A variety of trade barriers and tariffs were removed between the member countries;
however the same had no effect on trade policies with non-participants. It has been assessed by
market researchers that Trump is preparing for renegotiation and reevaluation of trade policy in
order to upend economic relationship which United State has held for years (Kohl, 2017).

Mid-term Impact of cancellation of bilateral agreements:
In accordance with Bove (2014), the main consequences for a midterm in case of the bilateral
agreement due to the cancellation of policy will be the trade barriers and tariffs which were
removed or mitigated while forming these agreements will be no more available. Economic
integration and trade liberalization are asked to have a profound effect on major aspects of social
life. The cancellation of NAFTA is criticized as “worst trade deal” ever signed by the US. The
main reason behind this agreement is high U.S. trade deficit and loss of jobs to the country. As
the economic relations between the member states will be affected significantly by the
cancellation of free trade policy. Now Canada will have more strong relation with Mexico, and
they will strongly defend to access US market. This contract will make harder to attain and
prolong the negotiations. Moreover, an increase in uncertainty relating to the final rules and
investment in NAFTA could be limited as the organizations wait to assess the reaction of change
in policies. The same will have the negative effect on economic growth as now bilateral
agreements will no more exist and increase in trade barriers will exist which will affect US
exports. Due to the cancellation of bilateral agreements imposition of taxes would result in
increase in prices of many goods and inflation too (Deardorff, 2014).
It is not an easy job to assess the impact of new trade barriers due to the cancellation of bilateral
trade agreements on restoring jobs in U.S. It is expected by a market analyst that it might be
possible that U.S. companies continue to outsource production to other countries at lower labour
cost in order to retain international competitiveness. However, in long-term deterioration in trade
and investment relationship with U.S. will have a negative effect on the economy. After the
cancellation of the bilateral agreement, it is expected that tariff and other trade measures to
restrict trade within NAFTA countries could negatively affect US organization in these sectors.
Even the foreign subsidiaries of US automakers have approximately an investment of $15 billion
plants, property and equipment in Mexico and Canada (Villareal, 2014). Efficient efforts have
been made by Trump to transfer the production back to US firms as they have higher labour cost
(Elena, 2017). In case the same is not succeeded that it could seriously damage their
competitiveness in comparison to foreign producers.
Long-term Impact of cancellation of bilateral agreements:

The main advantage which was attained due to bilateral NAFTA agreements and which will be
no more available due to the cancellation of these agreements have been specified below. In
other words, it can be said that no surety exists for the existence of this advantages as it depends
on the terms of renegotiated trade agreements.
Lowered Prices: As lower tariffs usually result in a decrease in import price of products and
services. The same leads to decrease the risk of inflation and also allows Federal Reserve to keep
interest rate low. However, if the situation remains same for long-term then it might lead to
increase in the rate of products as no advantage relating to lower tariff will exist after the
cancellation of bilateral agreements. Due to increase in prices, the same will have a significant
impact on the quantum of international trade; as it will eventually decrease in the long term and
affect the economy of the country.
Impact on economic growth: NAFTA has increased U.S. economic growth approximately 0.5
percent a year. The main sectors which have been benefited through same are agriculture
automobiles and service industry. Total farm exports have been assessed $39.4 billion in the year
2015 (Mansfield, 2017). However, the significant impact on economic growth has been
expected by the economist due to the cancellation of bilateral agreements. The reason behind the
same is that the cancellation will have a significant impact on trade and investment within
countries in which agreement has been done, and a direct relationship exists between economic
growth rate and international trade.
Consequences of decision on multilateral agreement in mid as well as long-term
Medium Term
Decline in welfare of the country
Economists considered NAFTA to be beneficial for the United States. A survey conducted by
leading economists in 2012, reported that 95% supported the benefits. In 2015, a study found that
the welfare of the country increased by 0.08% as a result of tariff reductions under NAFTA, and
the intra-bloc trade of US increased by 41% (Sundaram, 2016). However, the cancellation of
such a beneficial policy will definitely affect these figures significantly.
Jobs lost-

NAFTA helped the U.S. to compete against China and saved U.S. jobs. Now the country will
certainly face difficulties to compete for the development of China by losing the majority of the
jobs to it. While some jobs were lost to Mexico within NAFTA, the country will lose more jobs
with revocation.
Impact on trade environment
The framework of free trade policy was formulated to create a focused and organized body of
evidence regarding the first hypotheses about NAFTA and its impact on the environment. Thus,
with the cancellation of such a policy may raise a concern regarding a race between three
countries with respect to environmental regulation. This would increase the pressure on the
government for increasing their mechanisms for measuring the result of a trade on the policies of
environmental protection.
Impact on Intellectual property
The cancellation of NAFTA would reverse all the changes made on acquiring the intellectual
property through free trade between countries. The implementation of North American Free
trade policy made considerable changes by restoring copyright to the US copyright law which
foreshadowed the Uruguay Round Agreements Act of 1994.
Agriculture
From the initial negotiation, agriculture was the most controversial topic within the framework of
NAFTA. Agriculture still remains the most discussed topic for determining the impacts of
NAFTA cancellation. There were no bilateral agreements signed in the field of agriculture. The
agreements executed between Canada and U.S. contained important restrictions and tariff quotas
on agricultural products. Thus, the free trade was restricted up to a large extent; and the
cancellation of the same did not remove any of the tariff quotas. The agricultural sector still
remains unaffected by the cancellation.
Long-term
Negative Impact on US Economy
The overall effect of revocation of NAFTA on the economy of U.S. appears to have a relatively
modest impact since the trade with Canada and Mexico accounted for a very small percentage of

the GDP of the country. However, the agreement led to the reduced cost of worker and
adjustment costs. This may create a negative impact on the overall economy. NAFTA added $80
billion to the US economy after its implementation (Anderson, 2016). The U.S. Chamber of
Commerce concludes NAFTA for increasing the trade of goods and services in the country.
Trade Imbalance-
The U.S. had a trade surplus in 2009 with NAFTA of $28.3 billion for service sector and a trade
deficit of $94.6 billion in the goods sector in 2010 (Gantz, 2016). According to the American
Journal of Agricultural Economics, NAFTA increased agricultural exports of U.S to Mexico and
Canada. All these exports will fall as a result, which may lead to trade imbalance of the country.
Impact on trade relations with other countries
With NAFTA, the positive benefits not only accrued to the US; instead, many other countries
also grew with entering free trade agreements. The cancellation of such a policy may also result
in negative impacts on those countries as well. This, in turn, may impact the foreign trade
relation of US.
Canada- with NAFTA, Canada received a positive economic benefit in terms of GDP. Many
industries were expected to suffer due to decline in trade; however, entering the free trade
agreements lead to the growth of many such industries. Canadian employment rate increased
despite downward trend. Thus, one of biggest economic effects of cancellation on U.S. Canada
trade was the fall in the agriculture sector in both the countries. In the year 2008, Canadian
exports to US and Mexico were $381.3 billion (Caliendo, 2015). The imports in the same year
were at $245.1 billion. These figures are expected to fall sharply in both countries.
Mexico- Many American jobs were lost to Mexico, since many agricultural plants were moved
from US to Mexico. Mexico will suffer a loss in income in the sector of maquiladora sector;
which has increased by 15.5% with the implementation of NAFTA (Limão, 2016). Other sectors
which benefitted from the free trade agreement in context of share of exports from non-border
states will decrease. This will hinder the speedy growth of metropolitan non-border areas. The
overall effect of the revocation of Mexico–U.S. agricultural agreement is a matter of argument.
This is because Mexico did not invest in the necessary infrastructure needed for mitigating

competition which led to difficult living conditions for the poor of the non- border areas. All this
is expected to increase the tension between two lands
Future aspects of NAFTA
The deal stays as a target of politics. During 2008, Barack Obama gave a response to the broad
trade disbelief on the basis of democracy by ensuring to re-negotiate to comprise strong standard
environmental and legal aspects. The problem reappeared in the campaign held in 2016; with
Senator Bernie Sanders as well as Donald Trump condemned the impact of losing jobs.
Since May 2017, Donald organized better campaigning promising to re-negotiate NAFTA,
legally notified Congress that negotiations would be reformed with Mexico and Canada. As the
details of negotiations are categorized, the administration of president Trump has stated that
it will give consideration on lowering the trade deficit of United States-Mexico, narrowing
the requirements of rules, restructuring the dispute resolution system, and upgrading the fact
to comprise intellectual property and new digital and online services. As the talks are
continued, Trump has to repeat his danger to remove the United States on the whole.
In the midst of the experts of policy, most of the debate has given focal point regarding the
mitigation of negative aspects of agreements such as , if by paying compensation to workers who
have lost their jobs or offering workers programs of retention to assist them evolution to new
industries.
Particularly, the expansion of federal TAA which stands for Trade Adjustment Assistance, which
will further assist workforce to invest in education and training programs to search for new jobs,
can assist control anger engaged in the liberalization of trading. Most of the economists claimed
that its present levels of funding are insufficient to deal with the boost the trade-regarding losing
the jobs. The presence of these pockets emphasizes our failure of policy in assisting regional and
community to adjust from the influence of globalization. Several experts argued for deep
incorporation of North America, particularly in locations like border protection, energy and
migration reforms. Ultimately, Obama gave stretch to U.S.-led TPP along with 11 countries,
inclusive of Mexico and Canada. Further, the agreement was signed and approved in in February
2016. However, president Donal Triumph refused the terms of TPP besides reopening NAFTA;
the new management is organized in order to up end decades of bipartisan consensus regarding
the efficient effort for exploring the multilateral trade relationships the United States.

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