North American Free Trade Agreement (NAFTA) is a trade bloc that was formed in the year 1994 to enhance free trade between the United States, Canada, and Mexico. As a trilateral arrangement, NAFTA replaced the trade agreement that was signed between Canada and the U.S. The previous agreements between the countries in North America were very narrow in scope and had low purchasing power (Weintraub, 2004). NAFTA was not only signed to promote trade but also to enhance cooperation on environmental conservation around the region (Hufbauer & Schott, 2005). The trade block has played an important role in the development and growth of commercial activities around the region (Maxwell & Brian, 2002). Its success has attracted other countries from South and Central America. However, the expansion may affect both domestic and international politics. Latin American countries, such as Chile, Costa Rica, and Columbia, have shown greater interest in joining the trade block. Chile in particular has gone ahead by forwarding applications for membership (Lederman, Maloney & Servén, 2005).
Expansion of the trade block to include members of South and Central America may be a significant step towards economic development in the American region (Hufbauer & Schott, 2005). The countries enjoy constant economic growth and can provide suitable markets for exports. The U.S. will experience an increase in the level of exports by trading with the countries in Latin America (Hufbauer & Schott, 2005). Currently, the value of exports from the United States to these countries stands at a figure of $ 48 million. The value supports more than 2.5 million jobs in the United States. Therefore, these figures indicate that the expansion will open trade activities in South and Central America and also reduce the level of unemployment in the U.S. Moreover, Canada and Mexico will experience significant growth in trade and economic development since the initiative will open more trade opportunities for these two countries. Currently, Canada is the largest gainer from trade. The country’s value of export to the U.S. has significantly increased since the signing of the agreement. Therefore, increasing the membership of the trade block will enable member countries to expand their commercial activities (Weintraub, 2004).
Despite the aforementioned positive effects, it is important to note that the expansion of NAFTA may affect both domestic and international politics. One of the most possible negative effects is the transfer of the labor market from the U.S. to other countries, where the cost of labor is very low (Maxwell & Brian, 2002). For instance, from 1988 to 2004, the U.S. experienced an excess supply of labor in the market due to the movement of industries to Mexico. Such cases may increase after the expansion since the cost of labor is cheaper in Latin American countries (Lederman, Maloney & Servén, 2005). Another aspect related to labor will be the suppression of wages since most companies in the U.S. will move to other countries, hence weakening the domestic labor unions (Weintraub, 2004). On the international front, expansion of the trade block will deny the investors in Latin America the opportunity to develop their businesses. This situation was manifested in Mexico when the investors from the United States dominated major business activities in the country. The same case was observed in Canada where American companies dominated the Canadian markets (Lederman, Maloney & Servén, 2005).
References
Hufbauer, G.C. & Schott, J.J. (2005). NAFTA revisited: Achievements and challenges. Washington, D.C.: Institute for International Economics.
Lederman, D. Maloney, W. & Servén, L. (2005). Lessons from NAFTA for Latin America and the Caribbean. CA, USA: Stanford University Press.
Maxwell, A.C. & Brian, T.W. (2002). The making of NAFTA: How the deal was done. Ithaca, NY: Cornell University Press.
Weintraub, S. (2004). NAFTA’s Impact on North America the first decade. Washington, D.C.: CSIS Press.