NAFTA refers to a trade agreement that has been signed by Canada, Mexico, and the United States. This created a trilateral trade relationship between the three nations. The deal came to effect on January 1, 1994, and over passed the earlier Canada-United States Free Trade Agreement. The agreement was as a result of intense negotiations between the three countries, and later each country needed to get it approved and ratified by the respective parliament. The trade agreement shaped the business relationship between the three nations and positively impacted the lives of the respective residents. While NAFTA agreement targeted towards trade development and economic just for the entire society, unfortunately, it could only favor the high skilled labor in US while undermining the job prospects for low-skilled labors that are primarily employed in manufacturing industries. This trade-off has rather negatively affected the US employment data with around 75% of the working population eligible to be employed in small and medium-scale entities. This is also validated by the fact that more than 700,000 jobs attributed to manufacturing sector were transferred to Mexico and majority of these job losses were from areas such as California,Texas and Michigan where manufacturing is concentrated.
Another issue post the NAFTA agreement was the loosing job opportunities in US as NAFTA eventually strengthened the ability of the US employers to force workers to accept lower wages and since the majority of the labor unions were not ready to accept the lower wages,
NAFTA has increased the demand of jobs for the high skilled workers in the export industry value chain but decreased the demand for the low skill jobs. There is need for the authority to help those workers who were negatively affected by the trade agreement.
NAFTA trilateral trade agreement paved way for the Mexico and Canada to access the United States market and vice versa. Owing to the differences in the levels of production and value addition, the United States has benefited from the export of highly technical goods such as computers, cars, mobile phones and other sophisticated gadgets. As a result, this has created demand for high skill jobs in the technical manufacturing and other positions within the value chain. Mexico and Canada are able to supply the United State’s market with various products. The influx of low cost and less sophisticated goods from the two countries has negatively affected the small and medium businesses. The agreement allows companies to move their capital to these countries and many companies especially in the manufacturing sector have shifted their operations to the two countries. The move is encouraged by the low labor costs, resources and proximity to the market.
The argument that the agreement brought about negative impacts in the American job market is not founded. A notable fact is that, since the agreement was put into effect, more and more goods have since been coming into the country from those trading partners. From the economic perspectives, since the partners’ countries have weaker currency as compared to the US currency, the imports are cheaper than the locally manufactured products. Apart from the impact of depreciating Mexican Pesos, two other factors, namely, constant labor wages and cheap transport from US are also enticing US manufacturers to consider Mexico as a favorable destination.
Important to note, during 2003, after adjusting the wages for inflation and exchange rates, labor wages in Mexico were six times higher than in China. However, by 2011, wages in China were 40% higher than in Mexico, as the latter country experienced a trend of constant wages. On the other hand, transportation is another factor that makes Mexico attractive to US companies. Since Mexico is close to US than China, and also because the two nations enjoys stable transport network,the cost of transporting the goods is cheap rather than from China or other countries. These factors have adversely affected the local small scale companies and farmers who depended on the local markets and now they have to compete with cheap imports from these trading partners (United States Trade Representative). However, the value of the exports that has been generated is far much greater owing to the strong currencies and thus the United States stand to gain from the arrangement. At the same time, the loss in jobs owing to aforesaid is attributed to manufacturing industries that hunts for low cost labor and transportation. Therefore, it is majorly the labor in small-scale and medium-scale manufacturing units that is affected through NAFTA agreement.
In spite of the increased trade between the United States and the member states, there is a looming crisis in the United States labor market. As it has been the norm in many United States companies opting to produce their products abroad where the labor market is cheaper and other resources are available as compared to the US (Scott). More companies especially in the manufacturing sector are moving their production to Mexico. As a result job opportunities that would have been availed to the Americans are now availed to the Mexican. Although this is not a new phenomenon, the trend whereby companies relocate operations closer to the market and resources has been there even before the agreement. The agreement has made it easier (Hufbauer et al.).
Mexico has a comparative advantage over the United States owing to low cost unskilled labor. Even in the skilled labor category, Mexican employees’ wages are still lower that the United States’. The US has strong labor unions and a high cost of living that has driven the labor costs high. Companies that produce their products and sell them to the US have a competitive advantage over those who produces in the United States due to the low production costs. The agreement has rendered many employees who used to work in those low skill positions jobless. The manufacturing sector has a larger concentration of such positions as the processes are not highly mechanized. Thus, the loss of jobs is more concentrated in those states that used to depend more on the sector. A case example is Ohio State whereby a total of 14,653 jobs were directly lost as a result of the agreement. Similarly, Pennsylvania lost about 150,000 jobs as a consequence of the trade deficit in the United States. Although other sectors have absorbed the population, the impacts are still large compared to the fact that it was supposed to lead to a positive impact (Faux).
The overall impact is that the high skill job opportunities are increasing while the low skill ones are lost to the Mexico. This will further widen the already wide gap between the rich and the poor. The trends weaken the social fabrics and eventually may lead to disasters in the future if the authorities fail to come up with a radical solution to the problem. NAFTA affects the equilibrium in the labor market in the United States. As a result of increased export of highly technical goods, more opportunities are created for the skilled laborers. Competition from cheap imports kills the smaller and medium local industries. Capital movement shifts the job opportunities in favor of the foreigners. The US government should impose more customs on imports of some products to protect the local companies. Tax benefits should be accorded to companies that opt to produce their products locally to allow them to stay competitive and offer employment to the locals.
Works Cited
Faux, Jeff. "The high price of ‘free’ trade: NAFTA’s failure has cost the United States jobs across the nation | Economic Policy Institute." N.p., 9 Dec. 2013. Web. <http://www.epi.org/publication/briefingpapers_bp147/>.
Hufbauer, Gary and Jeffrey Scott. “NAFTA Revisited: Achievements and Challenges.” Washington, DC: Institute for International Economics, 2005.
Scott, Robert. "The High Price of ‘free’ Trade: NAFTA’s Failure Has Cost the United States Jobs Across the Nation." Economic Policy Institute. N.p., 17 Nov. 2003. Web. 18 Apr. 2016.
United States Trade Representative. "North American Free Trade Agreement (NAFTA)." United States Trade Representative. N.p., 2015. Web. 18 Apr. 2016.
