Toronto Mike

NAFTA is actually good for the American economy

One of President Donald Trump’s key plans was to renegotiate  the North American Free Trade Agreement (NAFTA), since he believes it poorly benefits the USA. This is not the first time we’ve  heard that NAFTA was a bad idea. Congress argued against it before it was  implemented in 1994. Though the main principle would be beneficial for the  three participating countries (Canada, Mexico, and the USA); fears were aimed  at companies moving their factories abroad and thus eliminating jobs.

To some extent, this has happened. Automotive companies like  GM, Ford, and BMW have opted for building their  factories in Mexico as manual labor is cheaper, generating more jobs. This affected the US – though  not as much as initially thought – and Canada, which have reduced their  automobile production from 15.8 million and 2.7 million to 11.4 million and 2.4  million, respectively.

Furthermore, because taxes on imports and exports between the  three countries have lowered, it is cheaper to manufacture items abroad and  then import them into the US than produce them in the US in the first place.  This has led to the loss of manufacturing jobs that Congress feared. However,  other industries, such as the trucking industry, have benefitted from NAFTA. states that NAFTA has caused the trucking industry to draw  in more than $89 billion dollars in revenue. With further deregulation and  reduction in taxes, this could increase even more.

Nevertheless, because of President Trump’s eagerness to  change the rules of play on NAFTA, this may not be possible and the trucking  industry would be affected. By increasing taxes, truckers may gain an essentially  insignificant net positive for Canadian and Mexican goods being imported. Truckers would then  exchange their goods at the border rather than enter the US, where the exchange  rate between currencies would cost them more for goods and services. The  economic repercussions could then affect not only truck drivers but other  industries reliant on them.

Even though President Trump insists NAFTA has been  detrimental to the economy, the opposite is actually true. Though jobs have been  lost to cheaper labor, production of American cars in Mexico has reduced the  cost of manufacturing automobiles; which in turn has allowed the US to compete with other  markets like China. By importing cars from Mexico rather than  China, the Mexican economy booms, cars are cheaper to purchase, and China is  denied another market in which to trade its goods.

Though the current iteration of NAFTA grants more benefits to  Mexico and Canada, the US should not try to levy a new agreement completely in  its favor. Maintaining the current status quo is necessary to aid our  neighboring countries further develop their economies while goods are kept low  cost.

Author image
About Toronto Mike
I own TMDS and host Toronto MIke'd. Become a Patron.