Question

Read The Economist article, "No mariachis please: Some Canadians think they are more important than Mexicans," and "Don't keep on trucking: Mexico retailiates against American congressmen who wanted closed borders."

The gains made by Mexico from joining NAFTA have been disproportionate to its neighbors to the north (the US and Canada). Was the US's actions in denying Mexican trucks access to US highways in 2009 warranted when it comes to saving transportation jobs? Explain.

Also, should Canada seek to strengthen its hand with Washington by negotiating stronger bilateral agreements at the expense of Mexico? Why or why not?

Answer 1

Economic theory is against both these actions. According to well established trade theories which have proven to be unchallenged for hundreds of years now, each nation specialising in the commodity in which it has comparative advantage or in which it has factor abundance will led to maximum benefit. Now Mexico has advantage in labour and usa in capital. So its not justified for USA to deny access to Mexican drivers to usa highways. Similarly any agreement between usa and canada will not led to greater benefits. Of course with trade as predicted by stopler samulson theorem scare resouces of USA or Canada like labour will loose but by appropriate redistribution policies all would gain.