International Trade Effects Of NAFTA
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International Trade Effects Of NAFTA



A PowerPoint presentation I created, accompanied by slide explanation/elaboration,

A PowerPoint presentation I created, accompanied by slide explanation/elaboration,
to briefly explain the economic effects of NAFTA.



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    International Trade Effects Of NAFTA International Trade Effects Of NAFTA Presentation Transcript

    • International Trade
      By Jason C. Prime
    • NAFTA Goals & Achievements
      On January 1, 1994, the North American Free Trade Agreement between the United States, Canada, and Mexico entered into force.
      NAFTA created the world's largest free trade area, which now links 444 million people producing $17 trillion worth of goods and services.
      Source: Office of the United States Trade Representative, 2010.
    • NAFTA Goals & Achievements
      From 1992-2007, the value of US agricultural exports worldwide climbed 65% while US exports to NAFTA partners grew by 156%.
      In the years immediately prior to NAFTA, US agricultural products lost market share in Mexico as competition within the Mexican market increased. NAFTA reversed this trend as the United States began to supply more than 72% of Mexico's total agricultural imports in 2007, due in part to the price advantage and preferential access that US products now enjoy.
    • US Imports from Mexico
      Exports: US$291 billion (world's rank: 14th). 
      Major exports:
      • Manufactured goods
      • Consumer electronics
      • Oil and oil products
      • Aircrafts, ships and other industrial equipment
      • Silver, granite and marble
      • Computers and servers
      • Agricultural products (fruits, meats, processed foods, vegetables, coffee)
      • Biotechnology
    • US Exports to Mexico
      Imports: US$309 billion (world's rank: 13th).    
      Major imports:
      • Steel mill products
      • Agricultural machinery
      • Electrical equipment
      • Repair parts for motor vehicles and aircraft parts
      Manufacturing (Capital Goods) i.e. Auto industries (Ford, GM), agricultural industries
      Kellogg's moved its plants to Canada and Mexico, thus encouraging Foreign Direct Investment
    • NAFTA Effects on Wages
    • Mean annual income of Males in USA
      Excerpt from …
    • Median annual income of Males in USA
      Excerpt from …
    • Mean annual income of Females in USA
      Excerpt from …
    • Median annual income of Females in USA
      Excerpt from …
    • Changes in productivity and related data, business and nonfarm business sectors, 1959-2007
      (percent change from preceding period)
      Real Compensation per Hour
    • Mexican Statistics for High School Enrollment by Sex
    • Mexican Statistics for University Enrollment by Sex
    • Government Expenditure allocated to Education, Mexico
      Source: UNESCO, United Nations Educational, Scientific and Cultural Organisation
    • Is this in step with the theories of the Heckscher-Ohlin Model?
    • The Heckscher-Ohlin Model
      The Heckscher-Ohlin Model is a model within the study of international trade which states that a capital-abundant country will export their capital-intensive good
      and a labor-abundant country will export their labor-intensive good.
    • Assumptions of The Heckscher-Ohlin Model
      Assumption 1: Both low-skilled labor and high-skilled labor can move freely between the industries.
      NAFTA eliminated trade barriers in goods sectors and nearly all service sectors.
      Assumption 2: Production of goods is labor-intensive, production of services is capital-intensive.
    • Assumptions of The Heckscher-Ohlin Model (continued)
      Assumption 3: The amounts of low-skilled and high-skilled workers found in the two countries are different, with Mexico abundant in low-skilled workers and the United States abundant in high-skilled workers.
      117,565/120,661 as of December 1993
      US numbers promotes high-skilled, capital service production
      Mexico numbers promotes low-skilled agricultural production
      Assumption 4: There is free international trade in output.
    • Assumptions of The Heckscher-Ohlin Model (continued)
      (Assumption 5: The technologies for producing goods and services are the same across countries.)
      Assumption 6: Consumer tastes are the same across countries, and preferences for goods and services do not vary with a country’s level of income.
    • Heckscher-Ohlin Model Analysis
      US and Mexico
      US Agricultural exports to
      Mexico have greatly increased;
      Mexico is the highest importer
      Of such goods
      Mexican industries that export/regions with higher concentration of foreign investment and trade have higher wages.
    • US Economic Growth during the years of NAFTA has been STRONG
    • Graph:
      United States Exports & Imports of Agricultural Commodities, 1950-2006
      • Two-way agricultural trade between the United States and Mexico increased more than 125% since NAFTA went into effect, reaching $14.2 billion in 2003 compared to $6.2 billion in 1993.
      • Mexico is the top export destination for beef, rice, soybean meal, corn sweeteners, apples and beans. It is the second largest for corn, soybeans and oils. As a result of NAFTA, the percent of U.S. agricultural exports to Canada and Mexico has grown from 22% in 1993 to 30% in 2007.
      • Source: USTR, NAFTA Facts 2008
    • Mexican Economy – US Economy Effects
      The Mexican economy is the world’s 13th largest; Mexico is the United States’ 3rd largest trading partner and the 2nd largest market for U.S. exports.
      U.S. exports to Canada and Mexico grew from US$134.3 billion (US$46.5 billion to Mexico and US$87.8 billion to Canada) to US$250.6 billion (US$105.4 and US$145.3 billion respectively).
      • Mexican exports to the United States reached over US$138 billion, while Mexican exports to Canada grew from US$2.7 billion to US$8.7 billion, an increase of almost 227%.
    • Value of US Exports to Mexico & Canada
    • Value of Mexican Exports to US
    • Exports e Imports de México, 1993-2003
      (miles de millones de dólares -mmd)
      1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
      Exportaciones 51.9 60.9 79.5 96.0 110.4 117.5 136.4 166.5 158.4 160.8 164.9
      Importaciones 65.4 79.3 72.4 89.4 109.8 125.2 142.0 174.5 168.3 168.7 170.6
      Comercio total 117.3 140.2 151.9 185.4 220.0 242.7 278.4 340.9 326.8 329.4 335.4
      Source: Secretaría de Economía, con datos de Banxico
    • “Our forecast and our idea is to sell a long-term project where we can
      move upwards from a trade agreement…more than just facilitating the
      transit of merchandises, products, services, and capital. It has to imply
      the free flow of citizens, and it has to imply long-term monetary policies.
      We have to get beyond the short-term. It [NAFTA] doesn't
      resolve the problems of migration, of income, and of improving
      income in Mexico's case.”
      - former Mexican President Vicente Fox
      Business Week, 2000
    • Mexico's export growth to NAFTA partners, as of 2005
      Var. 05/93Part. (%)
      Total Agri-Food 209.1% 100.0%
      Agricultural 133.2% 52.7%
      Agroindustrial 519.1% 42.6%
      Fishing 63.7% 4.7%
      Source: Ministry of Economy with data from Banxico, USDOC and Statistics Canada
    • US Effects
      Greatest opposition to NAFTA (and free trade in general) comes from the belief that foreign competition hurts U.S. employment., however:
      Employment within the US rose 22% (25 million jobs) from December 1993 – December 2006
      Average US unemployment decreased post-NAFTA
      1981-1993 7.1% unemployment
      1994-2006 5.1% unemployment
    • US Effects (continued)
      Moreover, increased openness to trade has been accompanied by a more rapid rise in wages, especially in the area of United States manufacturing.
      Average real compensation increased post-NAFTA
      1980-1993 0.9% annual growth
      1993-2006 1.6% annual growth
      Implicit gains in the area of income gains, due to higher national productivity, up to $930 annually for family of 4
    • Mexico Effects
      Mexican employment levels have been more volatile since the implementation of NAFTA. But, as of 2005, the Mexican affiliates of U.S. companies employed nearly 840,000 people who contributed 3.3 percent to Mexico’s GDP. (Foreign Direct Investment US->Mexico)
    • Mexico Effects (continued)
      Mexican wages grew steadily after the 1994 peso crisis, reached pre-crisis levels in 1997, then increased each year since then.
      Mexican industries that export/regions with higher concentration of foreign investment and trade have higher wages.
      Mexico’s Secretariat of Economy says: exported-related industries wages are 37% higher than those that don’t export.
      Manufacturing within the US rose post-NAFTA
      1980-1993 37% increase
      1993-2006** 63% increase
      Trade among NAFTA nations has risen 198% (an increase of $586 billion)
      Source: NAFTA Policy Brief, October 2007
    • Conclusions
      Over that period (1993-2007), GDP grew 50 percent in the United States and 46 percent in Mexico.
      United States:  38% economic growth Canada:            30.9% economic growth
      Mexico:             30% economic growth