The Importance of a Successful NAFTA for the United States Economy In this new millennium, international trade and commercial relations are growing more quickly than world national economies. This area of growth is expected to be the source of economic prosperity for all nations. Governments worldwide are recognizing the importance of creating trade alliances and lower trade barriers and tariffs. The goal of these actions is to foster the deepening of economic integration among countries while at the same time safeguarding national sovereignty, (Orme P. 48).
As a result, many governments are now signing free-trade zone agreements and are realizing the potential strengths of their large markets. The North American Free Trade Agreement agreed upon by Canada, Mexico and the United States is one of strongest and most important agreements ever negotiated. NAFTA goes beyond just removing trade barriers; it is an agreement to integrate two developed nations and one developing nation, and their economies. NAFTA is successful, more so than the European Union, Mercosur, or any Asian agreement, because of the unquestionable dominance of the United States and the roles each nation plays. The United States is a technology advanced, prosperous and economically diverse country with a large population, Canada is a prosperous, resource and technology based country with a small population, and Mexico is a developing country with a large labor base and a rapidly growing population (Welcome P. 12).
Each nation is important for the success of NAFTA, and the North American economic integration. The North American integration is not something that was quickly started after the 1994 signing of the North American Free Trade Agreement. The integration has been a work in progress since the end of World War II, and would have continued even if NAFTA were not ratified. NAFTA is not a history changing agreement, but a tool, which ca manage the ongoing integration in an efficient and organized manner. It is because of the historic cooperation among these nations that the success of NAFTA is certain. NAFTA creates a large market for the United States and adds volume and efficiency of trading.
The United States has invested much into the maintenance of NAFTA, and much into the support of its member nations. NAFTA brings billions upon billions of dollars into the economies of its nations and creates an economic rival for the European Union (Cargill p. 6). In order for the world economy to be controlled by the United States, NAFTA must be successful and then expand to encompass the Western Hemisphere. The success of NAFTA is important to the United States because the stabilization and growth of the NAFTA economy means the growth of the United States economy; the creation of a strong competitor for the Economic Union, Japan, and China; and the expansion and control of the world economy by the United States. In order for the economic growth to be significant for the United States, the United States must first stabilize the NAFTA economy.
Canada does not need much help due to their economic stability. Mexico is a different matter altogether. The economic size of Mexico is one-twentieth the size of the United States and Canada. There are other problems that surround Mexico that must be confronted as well.
Until recently, Mexico has had an autocratic political system controlled by PRI. this type of government is mostly associated with political violence and disrespect of human rights, significant differences in legal practices and law are economic obstacles (Kopinak P. 105). Mexico viewed NAFTA as a great leap forward, allowing them to jump from underdeveloped country to a developed nation in a short period of time. They eager to join NAFTA because this means Mexico s economy could now be saved if it could take its place in the international economy by exporting manufactured goods and services, and by increasing foreign investment in Mexico.
Along with the financial backing of the United States, Mexico initiated a world wide public relations effort directed toward developed nations and international organizations such as the World Bank, the International Monetary Fund, and the Organization for Economic Cooperation and Development (Mendoza P. 211). Mexico s manufacturing base has changed to maquiladoras as their new form of production and manufacturing products and parts. Before NAFTA, Mexico produced small plastic or wood toys and other products that were less technologically advanced. At present day, the toy market is now non-existent, and their factories are competing with those of the Asian Pacific Ream. Even though Mexico has a weak domestic demand, meager purchasing power, and a simultaneous structural change in which the public sector has ceased being the driving force of the economy, the production continues to increase and the economy continues to grow for Mexico.
The result is good for NAFTA, and Mexico s continued growth is good economically for the United States. NAFTA is jumping the first high hurdle of success. Mexico s new economic elites were now on par with their counterparts in any developed nation, Mexico was stable politically and economically, and Foreign investment was safe, Mexico could guarantee its stability, and was a result of national pacts among key political and economic groups that guaranteed continued peace, even though profits were rising for entrepreneurs and investors where as wages were held low for a docile working class (Anonymous P. 97).
This new economic stability was demonstrated by the relatively minor fluctuations in the value of the Mexican Peso. This was true until the Mexican economic collapse of 1994. President Ernesto Zedillo of Mexico devalued the peso by fifty percent in December of 1994 (Chosky P. 2).
Foreign investors pulled their investments and monies out of the Mexican Banks creating a downward spiral. Smaller investors lost millions of dollars, and inflation was completely out of control. Against popular opinion, President Bill Clinton pledged support from the United States Treasury Department, as well as convincing international organizations to pledge their help such as the International Monetary Fund, the World Bank, and the Bank for International Settlements in the amount of forty-seven billion dollars to help stabilize the economy (Orme P. 62). This action saved the Mexican Government of President Zedillo and saved the Mexican economy. The United States and Canada were forced to rethink their partnership with Mexico.
The problem was that in order for NAFTA to be successful, Mexico s resources and inexpensive labor must be used to create a product with low overhead and higher profit levels (Kopinak P. 31). This venture creates more revenue for the US companies. Instead of using cheap labor and paying freight from the Philippines, they take advantage of the local inexpensive labor of Mexico. The United States economy has invested much into the stabilization of NAFTA and Mexico. In the long run, the United States realizes that the potential economic prosperity far exceeds the short run costs.
This is good for the US economy and creates a large economic network to create more revenue and profits. The European Union has been in effect since 1992, but it has been in creation since the Bretton Woods talks of 1944. The year the European Community has formally worked with one another is far more than those of NAFTA. The European Union pulled itself out of the quagmires of war and restructured itself into the largest, most powerful economic power of the world (Mendoza P. 112).
The European Union integration is far ahead of those of NAFTA and has introduced the Euro. The Euro is the single monetary unit that will use by all member nations, and it was the newest world hard currency. The European Union does have its share of problems, such as the historic infighting and the lack of a pecking order to determine who was in control. Almost half of the member nations believe they should be the leader of the EU.
Germany has the strongest banking system and is used as the banking system for the EU, and they believe they should be the leaders of the EU. Great Britain is the most stable economically with the strong British Pound, and they believe they should lead. France is the founding father of the European Community and they also believe they should lead. This is also true with Italy and Greece and this creates a stagnant EU economy.
The second is the weakening of the Euro. When the Euro first opened in the market, it was trading 9 to 1 US dollar... Now the Euro is trading for 13 to 1 US dollar. This is due to the member nations continuing to use their national currency instead of pushing the agreed upon Euro. The Euro will continue to fall in strength and buying power. The third problem with the European Union is its earned perception of being the good ole boys club of Europe.
They do not allow other nations that are trying to do everything to satisfy their requirements to join and even on country that is exceeding standards to join. Turkey is not allowed to join due to its Muslim religion. The mistrust is growing n the European Union. NAFTA may be smaller in size and economic strength and behind in the race, but with the US financial power, NAFTA will catch and overcome the European Union (Chosky P. 51). Japan is another strong competitor and economic power with forces NAFTA to fight an uphill battle.
Japan is a great economic power with an umbrella, which extends and covers the Asian Pacific rim. Due to the economic crisis in the early to mid 1990 s, much economic energy was removed. They still represent the most technologically advanced nation in the world, with a business advantage with its horizontal and vertical monopolies (Mendoza P. 207).
They are ferocious competitor with a dedicated working population. NAFTA competes well with Japan, due to its resources and labor base. Japan has to import all of the resources used for production due to its small land mass and large population and high density. This creates a weakness for Japan s partners are too much for Japan s economy to overcome and thus makes them an island alone.
China is the next economical threat to NAFTA, and represents the largest potential economic power of the future. China has a vast amount of resources due to its large land mass and has the largest population of any nation. China has one quarter of the total population of the earth (Mendoza P. 209). With a strong push into the international economy, China realizes the prosperity and wealth it can capture in the international economy. China also has access to cheap labor and large manufacturing complexes in Hong Kong and other manufacturing centers.
These are the three competitive forces that will push the economic abilities of NAFTA and certainly those of the United States. The truth is that every economic power needs some sort of rival, or they will become complacent or unimaginative in the race for economic supremacy. The United States needs to be pushed in order for them to show why they are the economic power of the world. The ultimate goal of any nation is to be self sufficient, and then be strong enough to pull the puppet strings of the economic world. It is fair to say that since the end of World War II, the United States has been in the best position possible to accomplish these goals (Chosky P. 131).
The United States has been the lighthouse in the fog of a transitional world. The United States is the front-runner of almost any and all endeavors of business. They have paid one third of all total monies collected by the World Bank and have set the standard for innovation and influence. Between 1981 and 1988, United States exports to Canada doubled in relation to the United States export growth to the rest of the world. Canada-United States trade is called quality trade because it there is a major portion of job-creating manufactured goods being exchanged (Anonymous P. 45).
This volume of trade is no accident of geography. It is due to the hard work of both, good trade rules, solid business practices on both sides of the border, and good old fashion common sense. The free trade agreement allows us to make the most of the opportunities and comparative advantages available to the United States. Both governments are committed to creating a climate in which our producers, exporters, and investors can compete and expand. NAFTA does not always succeed, nor is the relationship free of problems, but with the free trade agreement, we have created a blueprint for sound management of one the largest trade relationships of the world. The dependence of Mexico and Canada on the United States is well understood in the rest of the world.
It is the US government s best interest to maintain open and stable relationships with its neighbors. Mexico can raise its living standard closer to that of that North American norm, only if it attracts jobs and investments that might have gone to even poorer neighbors to the east and the south (Welcome P. 3). The United States could distribute American investments and import orders in the widest possible horizons possible, but this would have very little cumulative effect to any market to demand attention.
This action would also deprive Mexico of the critical economic strength it requires to lift itself to the next level of economic development. If freer world trade would maximize global prosperity, groupings that divert trade and investment would deter natural economic interchange and growth. If the goal is local or regional competitiveness, the concern is the decay of overprotected economies. The North American common market would have to strive to avoid these traps by seeking further liberalization on a parallel basis with other trading blocs or within the framework of the World Trade Organization (Cargill P. 2). The North American market could provoke the formation of retaliatory blocs in East Asia and a defensive restructuring of the European Union.
Under NAFTA, the North American economy will combine the cross border integration of natural resource industries such as energy and steel, with the regional production sharing arrangements in advanced manufacturing industries such as automobiles and computers. These two separate systems are hallmarks of the European Union and pioneered by East Asia. Because of its size, diversity, resources and interdependence, a North American common market combines the best aspects of both systems. A North America free of tariff and investment barriers would be the most unified major market in the world. Even without NAFTA, North America conducts proportionately more of its business within its borders that the European Union or East Asian yen bloc (Mendoza P. 254).
The North American free trade area would be the most open common market in the world, giving it a comparative advantage in the demand of better access to markets overseas. With NAFTA, the 21 st century will mark North America s emergence as one of the largest and richest unified markets in the world. North America will be thinking of itself as an economic community with common standards, a shared history, and compatible goals. Even without the trade agreement, the continent would have remained economically interdependent.
Mexico would need to stay on its present investment driven path. But by having brought Mexico into the North American market formally, as a political partner and an acknowledged economic asset, the United States has a historic chance to make its relationship with its most populous neighbor more equitable as well as more profitable. There is no aspect of the relationship, financial, diplomatic, political, cultural or environmental, that progress toward a common market will not improve, just as there are no bilateral conflicts that NAFTA s rejection wouldn t have aggravated (Kopinak P. 151). NAFTA will not automatically resolve Mexico s problems or erase the legacy of centuries of cross-border friction.
Nor will it guarantee North American success in the global quest for markets and capital. But in all these areas, NAFTA will help, and is that not reason enough for the endless possibilities that exist (Orme P. 47). The United States believes that the future prosperity of their nation and the control of the world economy depends on the success of NAFTA.
The ability to dominate the world markets, capital and economy is something the United States has tasted and continues to do so. They will not release that power so easily and will economically commit war on their competitors to strengthen their grip on this priceless prize. Within the Western Hemisphere there is every reason to anticipate the perpetuation, and perhaps the accentuation, of US hegemony. In this event, a key determinant of US policy towards NAFTA will be the relative importance of the continent within the overall global arena. This value will depend largely on US relationships with major extrahemisphereic powers and its own position in the world system (Mendoza P. 314).
The more important NAFTA is for the purposes of US policy, the more attention it will receive. To some degree this outcome is inevitable. Largely to improve the US position compared to the other major powers. The United States seems intent on intensifying, consolidating, and deepening economic contact with the countries of NAFTA.
The United States is focusing on international systems, the distribution power, and perception and pursuit of national interests (Anonymous P. 167). NAFTA gives the United States an absolute advantage over to the European Union, Japan and its East Asian partners, and China. This advantage pushes the United States back into the position it wants. The absolute superpower of the world and the economic leader. Reference Page Anonymous.
Incomes and Productivity in North America: Papers of the 1997 seminar. Ber anan Press. Dallas, TX. 1997.
The Cargill Bulletin: NAFTA- The Mexico Factor. Cargill Publications. web. Chosky, Noam.
Notes on NAFTA: The Masters of Mankind. Documents on Mexican Politics. 1998. Kopinak, Kathryn.
Desert Capitalism. The University of Arizona Press. Tucson, AZ. 1996. Mendoza, Miguel Rodriguez. Trading Rules in the Making: Challenges in Regional and Multilateral Negotiations.
Brookings Institution Press. Washington DC. 1999. Orme, William. Understanding NAFTA: Mexico, Free Trade, and The New North America.
University of Texas Press. Austin, TX. 1996. Welcome to NAFTA. The Mexican Ministry of Economy. Washington DC.