Evaluating the Benefits and Drawbacks of the North American Free Trade Agreement and its Impact on the United States and Mexico

Abstract

The author evaluates the North American Free Trade Agreement and determine whether it is beneficial for the United States. Before making this determination, it is necessary to understand the international trade theory that underlies the agreement, and to research recent U.S. and Mexican trade policies in order to understand how the United States and Mexico entered into negotiations. The author discusses the classical approach to international economics, starting with Adam Smith's theory of specialization and division of labor, then discusses David Ricardo's theory of comparative advantage, and finally Bertil Ohlin's theory on why countries possess different comparative advantages. The international trade creates great potential for mutual economic gains. However, the Classical approach to international economics does not truly reflect the realities that exist in today's world. The Classical approach assumes free trade, and as we know, true free trade does not exist in practice. The author contrasts the advantages and relative efficiencies of free trade with protectionism. Protectionist policies create tremendous economic waste, harming nearly everyone from consumers, to taxpayers, to shareholders, and also businesses. Free trade is definitely the most efficient allocation of resources, therefore, it seems free trade must always be the proper policy. However, at certain times some protection may be necessary.