The impact of North American Free Trade Agreement (NAFTA) on Economic Development

Table of Contents

Introduction3

Discussion and Analysis4

Impact of North American Free Trade Agreement on Economic Development5

Conclusion20

The impact of North American Free Trade Agreement (NAFTA) on Economic Development

Introduction

Since the late nineteenth century, the United States had emerged as an economic world power. By 1914, the nation was the largest, most productive industrial power in the world. Most of America's economic growth in the first half of the twentieth century came from domestic production and consumption. Yet after the 1950s, trade with other nations became increasingly more important. Between 1960 and 1980, many of America's trading partners modernized their economies while the United States relied on an aging set of plants and industries.

By the late 1980s, key political and economic leaders began making the case for the importance of creating a large free trade zone in North America that would include Canada, the United States, and Mexico. Economic projections suggested that this zone would have to compete with other large trade zones in Western Europe and Asia for investment dollars, new technologies, new products, new plants, and customers. Organizing in powerful interest groups, they pressured the U.S. government to negotiate a complex trade treaty with Canada and Mexico that would give U.S. businesses access to large markets and inexpensive labor.

Much of the negotiation took place under the administration of President George H.W. Bush (served 1989-1993), while it was formally signed by members of the administration of President Bill Clinton (served 1993-2001) in 1994. Labor union leaders, community activists, environmentalists, and some business leaders opposed the North American Free Trade Agreement (NAFTA). Implementing the NAFTA treaty, they argued, would destroy jobs, disrupt whole communities, shift environmental costs from the relatively wealthy United States and Canada to a relatively poorer Mexico, and force many businesses to move to new locations or go out of business. The language of the NAFTA treaty below provides a good example of how its supporters envisioned the potential impact of this important international trade alliance.

After ratification of the General Agreement on Tariffs and Trade (GATT) in the 1930s, American business leaders had argued for expanding the nation's trade relations with other countries. NAFTA negotiations proved the successor of these earlier efforts, which had resulted in numerous treaties with America's trading partners. As the world economy emerged from cold war limitations in the 1990s, many economists, policy analysts, and government officials joined with business leaders to envision a global economy based on large free trade zones that would dominate the economy of the twenty-first century.

Advocates and supporters saw NAFTA as the first step in building the North American zone with the United States as the dominant member. During the 1990s, a number of U.S. firms moved plants and factories to the border regions between Texas and Mexico to establish maquiladoras (foreign-owned factories in Mexico where parts are assembled by cheap labor into products to be exported back to the United States) through a Mexican government ...