What is the purpose of NAFTA?

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kipling2448's profile pic

Posted on

The North American Free Trade Agreement (NAFTA) was negotiated among the United States, Canada and Mexico for the purpose of removing barriers to the exchange of goods and services among the three countries.  Absent a trade agreement, countries often find themselves entangled in disputes regarding each other's taxes, or tariffs, on the goods imported from abroad and on arcane issues like "dumping," which refers to one country's practice of exporting a large amount of goods, like steel, into another country's market, thereby depressing prices (the resulting surplus of steel, for instance, causes domestic prices to fall, hurting the domestic producers) and potentially driving those domestic producers out of business.  In addition to negotiating an agreement designed to minimize trade disputes among the three nations of North America, NAFTA was intended to help Mexico's economy expand by creating the conditions under which industries would prosper there, providing employment opportunities, thereby raising the standard of living for the average Mexican citizen.

Whether NAFTA has been successful is a matter of perspective.  Many Americans blame the agreement for encouraging American manufacturers to relocate their facilities to Mexico, where labor costs are lower and environmental standards generally weaker.  In addition, the hoped-for improvement in the standard of living among many Mexicans may have materialized, but it remains substantially lower than than in the United States.  Consequently, the hoped-for decrease in illegal immigration from Mexico to the United States hasn't occurred.

thanatassa's profile pic

Posted on

The North American Free Trade Agreement (NAFTA) came into effect in 1994. It's most immediate purpose was responding to a fairly straightforward practical issue. Canada and Mexico consistently rank among the top five trading partners of the United States. Given the sheer amount of economic activity shared by these North American countries, any reduction in trade barriers and obstacles to the flow of goods and services across borders should improve GDP. It also simplifies the logistics of supply chains

For example, car parts may be manufactured in Canada or Mexico, incorporated into cars manufactured in the United States, and then sold in Canada or Mexico, and NAFTA has made such integration of supply chains somewhat simpler. NAFTA also facilitates the movement of labor among the three countries, simplifying paperwork for businesses hiring temporary workers. NAFTA has successfully reduced trade disputes and contributed to an increase in the volume of trade.

People still debate whether NAFTA has resulted in outsourcing US jobs to Mexico. Some argue that NAFTA has not benefited the average US taxpayer or worker, while other feel that it has benefited consumers through lower prices. Even some 20 years after its enactment, economists still disagree about the pros and cons of NAFTA and who has benefited by it.

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pohnpei397's profile pic

Posted on

The purpose of the North American Free Trade Agreement (NAFTA) was to cause economic development in all three countries that are covered by the agreement.  Those countries are the United States, Mexico, and Canada.

Most economists believe that free trade is good for the economies of all countries involved.  It allows countries to focus on making things that they have a comparative advantage in making.  When countries do that and trade for the things they do not make (economists say), the overall levels of production for the world as a whole (or in this case for the region as a whole) increase.

The point of this agreement, then, was to increase production in the economies of all three countries.

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