Canada, Mexico, and the US are three major countries in North America. They trade i.e. buy and sell products and services from each other. Twenty-five years ago, they signed the largest trade deal in the world called North American Free Trade Agreement (NAFTA).
The agreement is 2,000 pages long, with eight sections and 22 chapters. Wow!
What was the purpose of NAFTA? To increase trade between the countries and also to help them be more competitive in the global marketplace i.e. compete with the EU and China. It achieved this by lifting tariffs or duties on essentially all goods and services traded between them.
Was this a win-win situation for all? Yes, there have been advantages
- Trade between the countries quadrupled and they enjoyed economic growth.
- Mexico and Canada got access to a larger consumer base to sell their products to.
- The countries got access to goods and services they wouldn’t have otherwise.
- The U.S. got access to a lot of relatively inexpensive products like fresh vegetables and fruit from Mexico.
- U.S. gas prices fell with cheaper oil imports from Mexico and Canada.
However, President Trump and several other U.S. politicians have openly stated that NAFTA is unfair. Many complain of its disadvantages:
- It has cost the United States half a million jobs and lower wages. Many automobile, textiles, computers, and electrical appliances companies shifted operations to Mexico due to lower production costs. American jobs went to Mexico, where the labor supply was cheaper.
- Mexico’s farmers who were growing produce available in America went out of business as they couldn’t compete with these cheaper American foods such as corn.
- Mexican workers have been made to work in horrible conditions for low wages.
The US threatened to pull out of NAFTA if Mexico and Canada didn’t re-negotiate the terms.
Last Sunday, the three countries had a major breakthrough. They announced they have signed a new trade deal. The new agreement — which the US President has named the U.S.-Mexico-Canada trade agreement or USMCA might replace NAFTA. First, it must be approved by each country’s government though, so if approved, it will not go into effect before 2020.
Written By: Biyash Choksey