Business Finance
Determine if American workers should fear the long-term effects of NAFTA

Question Description

I’m stuck on a Economics question and need an explanation.

Determine if American workers should fear the long-term effects of NAFTA. Provide an economic argument using the economic analysis

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Final Answer

 Generally NAFTA's supporters defend their position according to the   theory of comparative advantage, which postulates that in competitive markets trade produces  mutually beneficial outcomes. Otherwise, trade would not take place. Specialization in products for which each country has a comparative advantage will produce higher joint returns. The United States will lose some low-wage jobs we are told, but will gain more highly paid jobs which Mexican workers, with lower skills and less high-performance work experience, are unable to perform. Wages are much lower in Mexico than in the United States according to this argument, mainly because of lower productivity. So growing productivity will enhance Mexican wages and increase their purchases of U.S. commodities. and rising Mexican incomes,  will provide the resources for Mexico to strengthen its labour and environmental protections. NAFTA boosters point out that Mexico has strong labour laws (stronger in many ways than those in the U.S.), but lacks the resources for enforcement.


It is  believed that  dispute settlement mechanisms containing labour and environmental representatives would be better than leaving the resolution of disputes entirely to trade experts, who, as U.S. and GATT experiences demonstrate, are likely to minimize the importance of environmental and labor matters. An alternative would be to permit countries to enforce unilaterally their own legitimate labour and environmental standards, with trilateral commissions to resolve disputes. A model for such a mechanism could be the dispute settlement procedures of the 1987 U.S.-Canada Free Trade Agreement (FTA). The FTA created the bilateral U.S.-Canada Trade Commission, which has consultation and mediation responsibilities. If the Commission is unable to resolve a dispute, it can either be taken up by a bilateral blue ribbon panel or a bi-national binding arbitration panel

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