Question

Analyze the chart below:

1) Explain how the US economy would be affected if our trading partners stopped selling vehicles to the United States.

2) Analyze how countries benefit from participation in international free-trade agreements (Example: NAFTA).

• Give an example of how the U.S. has benefited from participation in a free-trade agreement.

Answer 1

1)

Initially, USA have to produce more vehicles at home, which would be expensive. The price of vehicles will be going up. Wages go up, too, to keep up with inflation. Many of the other things that America produces will lose the market share, and exports will dry up. This would result in a loss of GDP and job losses.

The net result is that they will avoid making those products and start making vehicles that they buy today from other countries. By doing this they will not be able to utilise their technological resources in which they are advanced with. And countries open for trade will overcome USA in terms of GDP and technology in the long term. It may become the second Spain. That's why it is not at all a pleasant scenario.

2)

Free trade implies, without tariff barriers or other non-tariff barriers for trade, that countries can import and export goods. Basically, free trade allows lower commodity costs , increased production, economies of scale benefits and a greater variety of products.

NAFTA has increased trade by lifting all the three countries' tariffs. This also established foreign rights arrangements for corporate investors. The rate of trade has been reduced by this agreement. This encourages innovation, investment and growth for small businesses in particular.

Benefit of USA: (Export Incr): From 142 billion dollars to well over 500 billion dollars, US exports have risen since NAFTA was introduced. Throughout the time, US exports to Mexico and Canada increased by 156%, while US exports to the rest of the world increased by 65%.

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