The disadvantages of the NAFTA agreement

Written by josh fredman
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The disadvantages of the NAFTA agreement
NAFTA and other free-trade agreements have caused serious strain to the American way of life. (rust image by Stanislav Halcin from Fotolia.com)

NAFTA is the North American Free Trade Agreement, a trilateral trade bloc between the United States, Canada and Mexico. NAFTA removes many of the usual international barriers to trade, such as tariffs, quotas and export subsidies. This has had a significant effect on the American economic landscape -- not all positive. Ultimately, the question of what NAFTA's "disadvantages" are depends on whom you ask, but some of NAFTA's consequences do seem obviously disadvantageous.

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Increased U.S. Trade Deficits

NAFTA has caused trade between the three member countries to more than double. However, given the relative economic disparities between the United States and our two neighbours, reduced barriers to trade have led to much larger trade deficits. Our trade deficit with Canada was £14 billion in 2009, during the fallout from the global economic crisis. Prior to that, the deficit was £50 billion in 2008, £44 billion in 2007, and £46 billion in 2006. With Mexico, our trade deficit was £31 billion in 2009, £42 billion in 2008, £48 billion in 2007, and £42 billion in 2006. These figures clearly demonstrate an imbalanced relationship.

Outsourcing and U.S. Manufacturing Decline

One of the main structural weaknesses in any free-trade agreement is the fact that it gives large manufacturing companies a strong profit motive to relocate their operations to a country with cheaper costs for labour and materials.

According to a 2010 report prepared for the Congress by its Joint Economic Committee, manufacturing jobs in the United States have declined almost 50 per cent since 2000, even as the national population has increased. NAFTA went into effect in 1994. The question of exactly what role it played in the decline of American manufacturing remains controversial, but the facts show that, while manufacturing job losses were minimised during the boom years of the 1990s, NAFTA coincided with unprecedented job losses when confronted with recessions in 2001 and 2008.

If nothing else, NAFTA was ineffective in protecting American manufacturing from adverse economic climates, and may very well have contributed to the decline. However, because relatively few of these lost manufacturing jobs were outsourced specifically to Canada or Mexico, NAFTA's direct responsibility is necessarily limited.

Suppressed Wages, Lost Tax Revenues, and De-Unionization

To help keep America competitive within the NAFTA free-trade zone, many American companies have dramatically cut costs. This can be accomplished in many ways, such as making cheaper products.

More serious, however, are the actions taken by companies to cut their labour costs and reduce their tax obligations. They do this by taking manufacturing out of the industrial north of the country, where the labour pool is highly skilled and trade unions are strong, and relocating to southern or interior western states where conservative economic policies allow companies to do business much more cheaply. Twenty-two states have "right-to-work" laws that have the practical consequence of wage suppression. Additionally, these states tend to have lower business tax rates and routinely offer large companies generous incentives to relocate.

The consequences of lower wages for workers and reduced tax revenues for governments is a reduction in material quality of life rates as measured by individual economic power and state social services and infrastructure. Again, NAFTA's direct responsibility for this "race to the bottom" business behaviour is limited, but becomes clearer in the larger context of free-trade practices generally.

Environmental Degradation

By shifting production out of the United States, companies can take advantage of laxer environmental laws --- particularly in Mexico, where NAFTA is concerned. The same production, effected more cheaply and more dirtily, necessarily results in harsh environmental consequences, both regionally in terms of pollution and ecosystem spoilage, and globally in terms of resource depletion and greenhouse gas emissions.

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