Question

Critics of the North American Free Trade Agreement argued that opening our borders to free trade with Mexico would result in U.S. firms moving all of their factories to Mexico and the U.S. running large trade deficits with Mexico. Comment on the concerns of these critics using your knowledge of international trade and net capital flows. This criticism should _______________________

Answer 1

Answer:

The criticism is true to a certain degree, and unjustified to another degree.

Explanation:

It is true in the sense that the U.S. has indeed lost a lot of manufacturing to Mexico, simply because Mexico has far lower labor costs, and U.S. manufacturers have decided to take advantage of that by taking their plants to Mexican states.

It is also true that Mexico has been running a trade surplus with the United States in recent years, mainly because of the large manufacturing sector that Mexico has been developing.

On the other hand, the criticism is unjustified because neither a trade deficit nor the moving of manufacturing to Mexico mean that the United States as a whole is in worst condition than before NAFTA. In fact, most economists agree that free trade is a good thing for the economy as a whole, and that most people benefit from the lower costs and specialization that trade brings about.

The problem lies then, in the people who lose their jobs: formerly unionized manufacturing workers from the Rust Belt, for example. These people need to be helped with government assitance, both in terms of welfare, and training, so that they can find new jobs and make ends meet in the meanwhile.