Trade Agreements: Good or Bad for the Global Economy

Last month, I shared the stage with two individuals who have been entrenched in the NAFTA agreement as Logistics and International Trade service providers since its inception.   The topic we spoke on revolved around the specific trade agreement, but what we touched on more were the differences between perception and reality in trade agreements.  Often, we are bombarded with so much political rhetoric that we fail to understand the true impact or intent of a trade agreement.

Kiko

So, let me focus on the NAFTA Agreement which has just completed its twentieth year of existence, and which we as a panel and many other establishments are reflecting on.  During the debate, the following positive comments regarding the agreement, which we heard from Washington, were:

  • A step to rival the creation of NATO
  • Long term economic growth for the Americas
  • Stronger alliances with our neighbors
  • “NAFTA guaranteed that Mexican products would gain access to the world’s largest market.” Carlos Salinas – Former Mexican President
  •  “The NAFTA signing created the largest, richest, most productive market in the world.” Former US President George H. W. Bush
  • “In NAFTA, we have a solid foundation to further integrate our economies through greater investments in finance, infrastructure, manufacturing and energy.”  Enrique Peña – Current Mexican President
  • “The biggest success has been as a foreign policy initiative. NAFTA has locked Mexico on the road to modernization and reform.” Dan Griswold – Director, CATO Institute

On the negative spectrum, people against the agreement used the following arguments

  • A mortal threat to American jobs from cheap Mexican labor “The great sucking sound,” that Ross Perot, predicted
  • A threat to safety on US highways
  • “I don’t think NAFTA has been good for America – and I never have.” Barack Obama – President of the USA
  • “This model of NAFTA has failed; it’s not good for the U.S. or for Mexico.” Victor Suarez – Mexican Congressman
  • “I think we should shift our vision away from NAFTA, accept that it’s complete and focus on the future.” Robert Pastor – Director of the Center for North American Studies
  • “We have the task of creating an alternative model that provides for international relationships that are just and transparent.” Marcy Kaptur – U.S. Representative

We posed the following questions and to the surprise of many, we revealed some very interesting statistics:

  • Did the economies of all three countries benefit equally?
  • If not, which country benefited the most in:
    • Economic growth?
    • Job creation or job loss?
    • Economic stability?
  • What is next… expansion of trade agreements with other continents?

The Reality is the following:

  • Trade has increased five-fold since NAFTA was implemented in 1994.
  • Mexican exports to the US have outperformed Asia since 2009.
  • Mexico’s economy has grown faster than the US but not as fast as China’s, though much of China’s growth is investment driven which is not as stable as consumer-driven growth.
  • NAFTA has allowed foreign investment in Mexico to grow +440% since 1994.
  • The United States is the largest source of Foreign Direct Investment in Mexico.
  • With enhanced trade and larger foreign investment, GDP in the US and Mexico has been growing steadily.
  • Mexico is set to become the Seventh largest economy by 2050 (by GDP, PWC).
  • Mexico’s immigration to the US started to decline after its peak in 2000, and is expected to continue declining.
  • Better working conditions in Mexico and increased Foreign Direct Investment allow this level of success.
  • Mexico’s middle class boom is contributed to by NAFTA.
  • Growth of the Manufacturing sector in Mexico (Maquiladora Program).
  • More US products available for a population with more money in their pockets.
  • Good for the US: A total of 22 U.S. states have Mexico as the No. 1 or No. 2 destination for their exports.

As you can see through the continuous debate over NAFTA, rhetoric can truly influence the opinion of many.  If the reality was better articulated, it would dramatically change public opinion, not only on NAFTA but on many other trade agreements that have been debated over time.

The reality is that we live in a global economy which thrives on partnerships that cross international borders, and the service providers of international trade are a significant part of the equation.  We here at the NEI want to give individuals the tools needed to make international transactions seamless to the public.  In fact, we are hosting one day workshop in Summerlin, NV on April 10 discussing various topic on global trade, including Free Trade Agreements.

By hosting such events and continuing to educate the industry, we hope to increase the knowledge of the trade community and the individuals who participate in this exciting and growing field.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s