NAFTA, a trade agreement that basically eliminated any restrictions on goods, services and investments between the North American countries (Mexico, United States and Canada) can in part be explained by looking at the world's largest retailer, Wal-Mart, and its expansion into Mexico. Wal-Mart did not have one store outside the United States until 1991, when it opened its first store in Mexico. NAFTA was signed into law in 1994, and today Wal-Mart is the #1 retailer in Canada and Mexico. This is good news, correct? Actually, it all depends on your point of view.
In Mexico, for example, Wal-Mart is now the largest private employer in the country. However, the minimum wage in Mexico has steadily declined as native companies have been unable to compete with the low prices at Wal-Mart (products mostly made in China). Although the Mexican government did eventually impose a large duty on products made in China, this did not right all the wrong.
Wal-Mart does send many products to Mexican factories under the Maquiladora program to be assembled (where wages and taxes are low and regulations almost nonexistent), then sending the products back to the United States to be sold; however, the Mexican economy benefits very little from these factories as they enter Mexico duty-free and are re-exported to the United States. Wal-Mart is able to capitalize on an abundant labor force who will work for extremely cheap wages to man these factories partly because of the collapse of the local farming business in Mexico.
One reason for the farming collapse is that NAFTA reduced tariffs and quotas in the agricultural arena, and farmers who sold products such as grain found themselves in competition with large, grain-producing companies in the United States. Also, Mexican law (article 27 of the Constitution of 1917) had previously ensured that farmers could not lose their ancestral farming land. However, this law was revoked by the Mexican government in preparation for NAFTA which meant that farmland could now be seized for unpaid debts.
In the second year of NAFTA, as Mexico entered an economic depression, workers fled first to the border areas where Wal-Mart maintained many of the afore-mentioned Maquiladora assembly factories, and then later to the United States due to extremely poor living conditions and even lower than normal wages. This caused a large influx of illegal aliens into the United States.
In Canada, although trade and investment have increased dramatically under NAFTA, and there has been less of a negative impact overall, the per capita income has actually declined, and there has been an upward redistribution of wealth to the richest 20% of the population, as well as a decline in employment.
After the implementation of NAFTA, the boom in the economy of the United States that was built for the most part on the expansion of domestic consumer credit and the stock market bubble spilled over into Canada and Mexico. However, this now means an increased impact on the two economies from the current U.S. economic woes as their economies are now extremely dependent on the U.S. economy.
It was originally hoped that NAFTA would increase economic growth and employment in all three countries, thus making the United States more competitive in the global economy. It was also thought, since employment was high in the United States in the 1990's, that NAFTA would increase employment even further, as well as increase wages. However, there has in actuality been a decrease in employment under NAFTA as companies have moved jobs out of the United States to take advantage of cheaper wages and less regulation. Also, the United States' trade deficit with Canada and Mexico rapidly increased after the implementation of NAFTA, and this has led to income discrepancies that have caused more harm to workers than benefit.
Workers' bargaining powers with companies have been reduced. Companies can (and do) simply move out of the United States rather than meet worker demands. Under NAFTA, workers have faced longer unemployment and fewer new jobs.
NAFTA, although initially trumpeted as a major achievement in trade among the North American countries, has not been the golden child as had been hoped. The jury is still out, but the final verdict does not look good.