International Trade and NAFTA

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Reflection Paper – International Trade



There has been a lot of talk lately about NAFTA being put at risk – either the US wanting to pull out of the deal or to significantly re-negotiate its terms. Industries that either benefit from NAFTA or feel that they do not benefit are lining up to express their positions – the latest being the auto industry, which has generally benefited significantly from NAFTA's country of origin rules

(Shepardson, 2018).



This discussion makes one reflect on the objectives of trade policy in general. The entire point of trade policy is to expand the economy by leveraging comparative advantages. While there are high profile instances where Mexico has comparative advantage, and has therefore won some trade away from the United States, the US has the most number of products in which it has a comparative advantage, with Mexico the least (Mzumara, Chingarande & Karambakuwa, 2012). The authors note, however, that Mexico has developed trade surpluses despite having the fewest number of products with comparative advantage. They conclude that this means that Mexico benefits, but that is not quite right. The objective of global free trade isn't to "win" each pairing by way of having a surplus over a country.

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The objective is to deliver greater economic efficiency, in terms of greater availability of goods at a lower cost. Persistent trade deficits are something that should be avoided, of course, but a nation is not expected to only have free trade agreements with one or two countries.



Indeed, when one juxtaposes the rhetoric of the Trump Administration – and not to put all the blame on them but other administrations in the past on particular issues – US trade policy has struggled to accept the reality of what global free trade is supposed to be. The Canadian government has demonstrated a much stronger sense of this to date. Canada does not view free trade as just NAFTA, but NAFTA is one trade agreement among many. If Canada "loses" a pairing, so be it, the country is committed to the global trading system.



This of course raises the interesting issue of politicians being in charge of trade policy. They are advised, of course, by bodies that specialize in trade and trade analysis, but ultimately political leaders set the direction for trade policy, and lawmakers have to ratify….....

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References

Lowenstein, R. (2017). Why attacking free trade is great politics and bad economics. Fortune. Retrieved January 15, 2018 from http://fortune.com/2017/01/23/trump-nafta-protectionism-tariffs-politics/

Mzumara, M., Chingaranda, A. & Karambakuwa, R. (2012). An analysis of comparative advantage and intra-North American Free Trade Agreement (NAFTA trade performance. Journal of Sustainable Development. Vol. 5 (11)

Shepardson, D. (2018). Major automakers urge Trump administration: Don't ditch NAFTA. Reuters. Retrieved January 15, 2018 from https://www.reuters.com/article/us-autoshow-detroit-nafta/major-automakers-urge-trump-administration-dont-ditch-nafta-idUSKBN1F42MI

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