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The Pros & Cons of NAFTA Agreement and Impacts on Pekin, Illinois Economy – Local Records Office

Written by Posted On Wednesday, 25 April 2018 13:12
LOCAL RECORDS OFFICE, PEKIN, IL LOCAL RECORDS OFFICE, PEKIN, IL

North American Free Trade Agreement (NAFTA) was ratified by the U.S., Mexico, and Canada in 1994, and eliminated most tariffs between the three states, says, Local Records Office. As an example, a Corona is a Mexican beer and wants to sell a six pack of beer in the U.S. for $10. However, the U.S. government puts a 40% tariff on all Mexican beer. After a 40% tariff, the Corona will now cost $14. Yet, thinking consumers might buy more beer when it's cheaper and remove the tariffs, making products cheaper and consumers will buy more of them. According to the Local Records Office, the trade between the states has its pros and cons in Pekin, Illinois based on the facts.

Pros and Cons of NAFTA

PROS

-It quadrupled trade between Canada, Mexico and the U.S. and the elimination of tariffs increased trade to $1.14 trillion in 2015.

-While global trade in goods and services rose from $6 trillion to $19 trillion a year between 1985 and 2009, global capital flows more than quadrupled in that period, from $1.1 trillion to over $5.2 trillion a year.

-Increased economic output- and boosted U.S. growth by 0.5% per year. Benefited industries such as agricultural, automotive services and financial services in health care.

-Created 5 million new American jobs

-Nafta changed how Americans eat-avocado consumption changed from 1 pound per person to 7 pounds –Mexican production has been through the roof and has even helped increase revenues in U.S. avocado production companies.

-Boosts U.S. exports, while lower-priced imports and the gains in productivity –and the benefits of lower prices for consumers. "According to the Council on Foreign Relations, trade between the three states has increased from $290 billion in 1993 to $1.1 trillion in 2016."

-"Cross-border investment has also surged, with U.S. foreign direct investment (FDI) stock in Mexico increasing in that period from $15 billion to more than $100 billion"

-Posen notes, Oldenski and Moran (2014) find, on average, every 100 jobs in U.S. manufacturing that multinational corporations created in Mexican plants, nearly 250 of U.S. operations jobs were added. The data is available on the PIIE website for those who wish to replicate this result (all of the data used can be found in NAFTA at 20).

-Exports and imports of goods and services improve long-run economic performance through a number channels.

-The value to the U.S. economy in terms of export revenues significantly outweighs the value of imports.

CONS

-It has been proven to be difficult to tease out the deal's direct effects from other factors, such as rapid technological change, expanded trade with China and unrelated domestic developments in each of the countries

-Mexican labor is cheaper –and is making people in the U.S. lose their manufacturing jobs.

-Shoes have had a 17% tariffs and made manufacturing those types of goods less likely.

-Caused a sharp decline in U.S. manufacturing jobs, alongside the rise of corporate "offshoring" in countries with low wages and weak labor and environmental standards –while some argue that it is to blame for job losses and wage stagnation in the United States, driven by low-wage competition, companies moving production to Mexico to lower costs, and a widening trade deficit.

-Caused the loss of up to 600,000 U.S. jobs over two decades -the U.S. auto sector lost some 350,000 jobs since 1994—a third of the industry—while Mexican auto sector employment spiked from 120,000 to 550,000 workers.

-"Mexican unemployment also rose, which some economists have blamed on NAFTA for exposing Mexican farmers, especially corn producers, to competition from heavily subsidized U.S. agriculture."

-"NAFTA put almost two million small-scale Mexican farmers out of work, in turn driving illegal migration to the United States (Migration to the United States, both legal and illegal, more than doubled after 1994, peaking in 2007.)"

-From 1960-1980, the Mexican real GDP per person almost doubled, growing by 98.7%. By comparison, in the past 20 years, it has grown by just 18.6% and is about half of the rate of growth achieved by the rest of Latin America.

-There are 14.3 million more Mexicans living below the poverty line as of 2012, since 1994.

Mexico’s competition with China

Mexico's exchange rate is at a cost disadvantage with China, with the wage gap at-large, making it difficult to compete. "The Mexican Central Bank's form of rigid inflation targeting also adds a large element of unpredictability to the exchange rate, which has a negative impact on foreign direct investment; foreign investors will find it difficult to know how much their assets or output will be worth internationally in the future."

Academics Autor and Hanson show how "rising imports from China have indeed put modest and localized downward pressure on wages in competing industries (about 3 percent of base wages), and increased the pace of layoffs—effects somewhat offset by Trade Adjustment Assistance (TAA) and Social Security Disability Insurance (SSDI)."

The Chinese government owns most of the banking system in China and can sure its most important exporting firms have sufficient access to credit. In Mexico, 70% of the banking system is not only private but foreign-owned.

Chinese has an active industrial policy which enables to help to export firms in various ways.

China spends 1.84% of its GDP on research and development, compared to Mexico's 0.46%.

_______

While there are many opposing views of the way Trump is handling the NAFTA situation by Tweeting of banning the NAFTA agreement and DACA, and by using these as tools to rebel against Mexico unless they come to terms of building a wall, first, I do not believe this is the correct way of retaining relationships with other countries.

And "with President Trump rejecting the TPP in addition to reopening NAFTA, the new administration is set to upend decades of bipartisan consensus on the desirability of expanding the United States' multilateral trade relationships."

Destroying our relationships for building a global economy closes all the doors of opportunities to improve the NAFTA agreement, so instead of breaking ties with other countries, we should be working together to creating the best benefits for our global economy movement to improve and be more sufficient.

That is why I have a proposal, Mr. President Trump, first, please look at the facts and view how free-trade has stimulated all three countries growth. And let's use our laws to create a better overall establishment of trade with other countries, by furthering restrictions to help boost all economies.

While "many jobs were created in Canada and Mexico, and [the resulting] economic activity created a somewhat seamless supply chain — a North American supply chain that allowed North American auto companies to be more profitable and more competitive." And by creating a full-fledged model of protecting the trade policy and continuing a global economy where it makes sense and is a win-win for everybody is going to keep the U.S. in the competitive market, by establishing lower prices and emerging higher-quality factories for goods and jobs. And just like China's reinvesting their money back into their resources of developing a strong banking system and research and development in GDP, so should we.

Thirty-six Republican senators sent a letter highlighting NAFTA's benefits to the U.S., outlining the ways the administration can improve the agreement, with NAFTA supporting 14 million jobs and representing thousands of jobs in each of the 50 states, they embark on the idea of "modernizing NAFTA to increase market access, expand energy exports to maximize domestic energy production and including provisions on intellectual property and e-commerce will make this agreement even more beneficial to the United States."

NAFTA has driven U.S. trade with Canada and Mexico to about $1.3 trillion annually and a wide range of industries have benefited and are reaping the benefits. Economic success will come out of us moving forward with our ‘New America's Economy', instead of going backward. Therefore, I believe we need to focus on ways to boost our economy at a global level, instead and enforce by news and regulations to create a better future for America.

"An economy may be affected by a trade deficit, but that deficit can be offset through full employment policies at home."

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