The Impact of NAFTA on Domestic and International Markets
The effects of the North American Free Trade Agreement have culminated to the extreme interdependence of the markets of Mexico, Canada, and the United States. The North American Free Trade Agreement, abbreviated as NAFTA, came into force on January 1, 1994. The agreement allows companies to transport goods and materials across the borders with relative ease. This had huge implications on the jobs opportunities in the United States in particular. As the cheap labor of Mexico became available for use, jobs in the United States declined in certain industries such as the automotive industry. Automotive jobs have gone down 15 percent since December 1993. However, this decrease in cheap labor jobs was not the only result of NAFTA. As low skill jobs disappeared, more high skill jobs such as engine manufacturing and the actual assembly of cars rose in number due to the higher supply in the United States compared to Canada and Mexico. Additionally, companies like Dell are able to compete with international companies like Lenovo due to their ability to utilize cheap labor in Mexico. The effect of NAFTA is thus wide ranging and not as negative as some politicians may make it out to be.
In our course, we’ve discussed the effect of prices in markets and the result of driving prices down due to competition. NAFTA allows for lower prices due to easier access to materials and labor. The price of labor in the United States versus Mexico also dictated where jobs went. Since the payoff for the “buyer”, in this case the companies, was maximized by lower labor prices by the “sellers”, the workers selling their labor, the market shifted to meet the demand and the net result was a loss of jobs in the United States. Additionally, the competition from international companies like Lenovo with Dell here in the United States can be modeled as a bipartite graph, showing Lenovo and Dell as sellers on the left and potential buyers on the right, seeking to purchase a computer. Since NAFTA allows Dell to lower their prices by providing cheap labor, they are able to maximize buyer payoffs and earn more money in the process. Thus, NAFTA’s implications on the domestic and international economy can be easily modeled by the topics we have covered in this course.