Essay about North American Free Trade Agreement: Nafta

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North American Free Trade Agreement: NAFTA


I believe that the North American Free Trade Agreement was an inevitable step in the evolution of the United States economic policy. The globilization of the world economy due to technological advances in computers and communications have shrunk the world to the point where no single country acting alone can effectively compete on the foreign market. Even the United States, with its vast resources, can not have an absolute advantage in all thing that it produces. It does not have unlimited factors of endowments and must do its best to make these available to the companies within its borders.
There are two basic sides to
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While on the surface it seems that a free trade area would always be a good thing, it is easier said then done. The majority of people that oppose
NAFTA do so because of the potential for loss of employment. Mexico with its cheap work force, will tend to make manufactures requiring extensive manual labor more likely to move to the lower cost area. A loss of sovereignty may also be a stumbling block, since some economic policy decisions are taken out of the governing bodies' hands.
Another factor is the extent of trade creation versus trade diversion.
The difference is if high cost domestic producers are replaced by low cost producers within the trade area then trade creation occurs. If trade diversion occurs, it would have a major impact on consumer prices. This practice is evident in the textile industry and will be discussed later.

History of NAFTA

In 1988, the United States and Canada agreed to enter into a free trade agreement. This went into effect on January 1, 1989 and was widely accepted as a logical course of action. Canada is a highly developed nation and has a lot in common with the United States. Its per capita income and hourly wages are equivalent to the U.S. and has long been considered our brother to the north.
Then in 1991, Mexico entered into talks with Canada and the United States that concluded on 17
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