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Free Trade Agreement Negative Effects

September 21st, 2021

Since the beginning of the recession in early 2001, displaced commercial workers have been particularly affected. Workers experienced longer unemployment and found it much more difficult to get new jobs. Many concluded that their work in manufacturing would never come back. The growth of the trade deficit since the beginning of 2001 has contributed to an absolute decline in employment, and not only to a relocation of employment from manufacturing to other sectors. Free trade agreements are intended to increase trade between two or more countries. Strengthening international trade has the following six main advantages: In fact, most U.S. exports to Mexico are spare parts and components shipped to Mexico and assembled to form finished products that are then repatriated to the United States. The number of products Mexico assembles and exports – such as refrigerators, televisions, cars and computers – has increased significantly under NAFTA. Many of these products are manufactured in the Maquiladora export processing zones in Mexico, where parts are re-exported duty-free to the United States, with tariffs paid only on value added in Mexico.

Maquiladora`s share of total U.S. exports to Mexico increased from 39% of U.S. exports in 1993 to 61% in 2002.2 The number of such facilities increased from 2,114 in 1993 to 3,251 in 2002 (INEGI 2003a, 2003b). The United States has experienced steadily increasing global trade deficits for nearly three decades, and these deficits accelerated rapidly after NAFTA entered into force on January 1, 1994. For the purposes of this report, it is necessary to distinguish between domestic and foreign exports, which are products manufactured in other countries but exported to the United States and then re-exported from the United States. In 2002, foreign exports accounted for 11.6% of total U.S. exports to Mexico and Canada. However, since only domestic exports create jobs in the United States, our trade calculations are based solely on domestic exports. Our measure of the net impact of trade used here to calculate the wage of trade is the difference between domestic exports and total imports.3 We call this “net exports” to distinguish it from the more frequently reported gross trade balance. These two concepts, however, are the measurement of net flows. Among the central concepts of free trade agreements and free trade areas are the advantages and disadvantages of free trade agreements on jobs, business growth and living standards: free trade agreements are concluded by two or more countries willing to seal economic cooperation between them and to mutually agree on trade conditions.

In the agreement, Member States explicitly indicate tariffs and customs dutiesA tariff is a form of tax applied to imported goods or services. Tariffs are a common element in international trade. The main tax objectives to be imposed on Member States when it comes to imports and exports. In trying to identify the causes of trends such as the disappearance of jobs in manufacturing, rising income inequality, and falling wages in the United States, NAFTA and growing trade deficits provide only part of the picture. . . .

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