Nafta Progress

There is very evident contemporary trend towards service-based economy in the developed and developing world. This has especially manifested in North America, where the most GDP production by sector is concentrated in services from each country (CIA Factbook). Each country has a great deal of services to logistically support the population and economy, but the gains come from the good exploitation of relative efficiency from availability of resources or inputs to use of innovation and technology to expertise and education. The general exchange of goods and services has lead to areas of specialization determined by market advantages. Each country has their set of goods and services to which they hold a competitive advantage. With free trade under NAFTA, terms of trade are negotiated through companies and market prices, and trading nations get goods cheaper from the other cheaper than they could under autarky. The first step in understanding the trade implications and trends from comparative advantage is to define the economies.

Canada’s economy is developed to the point of the US, just to a smaller scale. The main industries include: transportation equipment, chemicals, processed and unprocessed minerals, food products, wood and paper products, fish products, petroleum and natural gas (Canadian Government). Their agriculture sector produces mainly wheat, barley, oilseed, tobacco, fruits, vegetables, dairy products, forest products and fish (Canadian Government). Their vast amount of natural resources and proactive environmental policy helps both sectors sustainably develop and contribute to the success on national and North American planes. According to the Canadian Government’s web site on the economy, Canada posts huge export gains in agriculture and fishing, energy products, forestry products and automotive parts. As a testament to the attractiveness of free trade specialization, in 1998, as the online article notes, the US bought over 80% of Canada’s exports and produced about 75% of their imports. The labor market is expanding mostly for people with a high amount of education, and their unemployment rate is about 6.8%.

The southern neighbor to the US, Mexico, has a very different economic structure. Agricultural production concentrates on corn, wheat, soybeans, rice, beans, cotton, coffee, fruit, tomatoes, beef, poultry, dairy products and wood products (Bajaquest and CIA Factboook). Industry mainstays would include food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables and tourism (Bajaquest and CIA Factboook). The numbers for trade concerning Mexico mirrored that of Canada, with the US buying almost nine-tenths of Mexican exports and providing nearly three-quarters of Mexico’s imports (Bajaquest).

There must intuitively be a reason behind the high volume of trade besides proximity. NAFTA must have clearly had an influence to promote trade by removing tariffs and other man-made trade barriers. This has led to specialization that perpetuates incentives to trade by capitalizing on the each nation’s comparative advantages. The US Census Bureau provides US international trade statistics about Canada and Mexico that implies comparative advantage by showing relative exports exceeding imports. Mexico must have the general comparative advantage in non-edible crude materials excluding fuel, animal and vegetable oil, fats and waxes and chemicals and related products. Mexico also includes, but is not limited to, a comparative advantage in unskilled labor, more tropical agricultural products, silver, crude oil, tourism, tequila and mescal (The Economist).