Which Statement Reflects an Outcome of the North American Free Trade Agreement Brainly

In this world, the classic Ricardian business model provided a good explanation of the structure of trade, e.B which countries would produce which products. England would produce textiles according to its wool production and availability of capital, and Portugal would produce wine according to its sunshine and fertile soil. If Portugal chose to hinder the import of British textiles, its own economy would be less prosperous and it would still be in Britain`s interest to allow the free import of Portuguese wine. Then Adam Smith challenged this dominant thought in The Wealth of Nations of 1776. [2] Smith argued that if one nation is more efficient at making one product than another country, while the other nation is more efficient at making another product, both nations could benefit from trade. This would allow any nation to specialize in the production of the product, where it has an absolute advantage, thus increasing overall production compared to what it would be without trade. This idea implied a very different policy from mercantilism. This meant less government involvement in the economy and reduced barriers to trade. Of course, to succeed in a neo-mercantilist strategy, a country needs access to other markets, as provided for in the gradual liberalization of trade barriers within the framework of the GATT/WTO. Neo-mercantilists typically focus on key industries chosen by the government, a strategy known as industrial policy. A successful industrial policy requires a far-sighted government.

Japan had an extremely competent group of officials in the Ministry of Industry and Trade (MITI), which oversaw its industrial policy and was basically immune to political pressure. While the MITI has had many successes, it has also made some missteps. For example, in planning to develop a world-class auto industry in the 1950s, MITI officials initially believed they had too many automakers and urged Honda to merge with another company. Instead, Honda decided to invest in the United States and became a leading automaker. Another important assumption of traditional economic theory is that basic factors of production such as land, labor, and capital are not exchanged across borders. Although Ohlin considered that these basic factors of production were not traded, he argued that relative yields of factors of production between countries tend to be balanced when goods are traded between countries. Subsequently, Samuelson argued that factor prices would in fact be balanced under free trade conditions, and this is called in economics the factor price equalization theorem. [7] This could mean, for example, that international trade would lead to wage rates for unskilled workers in high-wage countries falling to the same level as wages in low-wage countries relative to rents available from capital, and wages to increase relative to rents available from capital in low-wage countries and corresponding to the level of country. in which work is less abundant. (The implications of this are important and will be explored in more detail in Chapter 8.) Another important concept in international trade theory is the concept of the “terms of trade”. This is the amount of exports needed to get a certain amount of imports, the fewer exports needed, the better it is for the country.

The terms of trade can change, either in favour of a country or by reducing its well-being. In order to minimize the possible negative effects of these trading blocs, Article XXIV of the GATT requires members of a customs union or free trade agreement to remove barriers to trade for “almost all” trade relations between them and that all GATT members have the opportunity to review the agreement. In the event that a GATT member that is not a party to the customs union faces higher tariffs on certain products when establishing a customs union, Article XXIV requires that member to be compensated for the loss of trade. However, as noted in Chapter 2, Article XXIV has proven to be totally ineffective in limiting the growth of trading blocs; As a result, trade flows are now heavily distorted by these preferential regimes. The North American Free Trade Agreement (NAFTA) was implemented to promote trade between the United States, Canada and Mexico. The agreement, which eliminated most tariffs on trade between the three countries, entered into force on 1 January 1994. Many tariffs, notably on agriculture, textiles and automobiles, were phased out between 1 January 1994 and 1 January 2008. Following a multilateral round of trade negotiations under gatt/WTO, tariffs will be reduced during a transitional period, but not completely abolished. However, in bilateral or regional U.S. free trade agreements (FTAs), the parties to the agreement completely eliminate almost all tariffs on trade between them, usually over a transitional period, which can be five to ten years. From the beginning, NAFTA`s critics feared that the agreement would lead to the relocation of American jobs to Mexico despite the complementarity of the NAALC. NAFTA, for example, has affected thousands of American autoworkers in this way.

Many companies have moved production to Mexico and other countries with lower labor costs. However, NAFTA may not have been the reason for these measures. President Donald Trump`s USMCA should address these concerns. The White House estimates that the USMCA will create 600,000 jobs and add $235 billion to the economy. The second factor that can affect a country`s current account is the exchange rate. The exchange rate refers to the amount of foreign currency that can be purchased by a country`s own currency. According to economic theory, if a country runs a persistent trade deficit, its exchange rate would fall relative to its trading partners – for example, if the US has a persistent deficit, the dollar would have to buy fewer currencies, such as the euro or the yen. This would mean that imported products would cost more because they would require more dollars for each unit of foreign currency, which would lead to lower imports. In addition, U.S. exports are expected to increase, as foreigners can buy more of their products for each unit of their currency. The Heckscher-Ohlin model, which is good at projecting likely business models between countries where the factors of production are different, really did not explain this business structure. Krugman`s theory is based on product differentiation and economies of scale.

For example, a Jeep and a Volkswagen are both automobiles, but they are very differentiated from the consumer`s point of view. And both benefit from economies of scale; This means that the larger the production, the more costs can be reduced in a wide range of volumes. Unlike wheat, where the cost increases with increasing volume, the cost of each additional automobile produced decreases with increased production, although with a very large volume of production, production costs would likely increase. Goods such as automobiles require large mechanized production runs and significant capital investments, and it can be extremely difficult for a new entrant to compete with an established company. Like trade in investment and capital, post-war economists did not conceive of trade in services. In fact, trade in services was considered almost an oxymoron by early economists such as Adam Smith and David Ricardo, who assumed that services were non-negotiable. This was also the view of trade negotiators for three decades or more after the launch of GATT. [29] See e.B ibid., 54: “The theory of comparative advantage assumes that trade is balanced (i.e., exports are equal to imports in value) and that labour is fully engaged. If trade is not balanced, the surplus country will have to export certain goods where it does not have a “real” comparative advantage. This happens for some products as a result of multilateral trade negotiations.

For example, a country often lowers tariffs on products that are not sensitive to imports – often because they are not manufactured in that country – more than duties on import-sensitive products. In a free trade agreement where the end result is zero tariffs, this would have no effect if the agreement is fully implemented. However, during the transition period, it may well be relevant for some products. Apart from this exception, however, the removal of tariffs or other barriers to trade increases trade in the product, and this is the intention of the trade agreement. Given the problems with business models, some economists reject their usefulness. For example, Bhagwati says, “I look at many of the estimates of trade expansion and the benefits of trade – with a lot of effort through the processing of numbers in institutions like the World Bank using huge computable models. like little more than fantastic flights in designed flying machines. [17] Many economists would consider this criticism extreme, but nevertheless, business models should be viewed with great caution. The GATT authors considered that the removal of barriers to trade should be carried out on a multilateral basis in order to make the most of increased production on the basis of comparative advantage. .