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The North American Free Trade Agreement is a treaty signed by the governments of the United States, Mexico, and Canada to improve trade between the three largest economies of North America. The North American Free Trade Agreement (NAFTA) is a clear example of how the United States and other nations have become increasingly interdependent. The agreement between the United States, Canada and Mexico established free trade in North America, and abolished tariffs (taxes on imports) among the three nations. Goods and services could flow freely throughout North America, which in effect has become one big market. This enables the growth of multinational corporations.


  1. Growth of multinational corporations (corporations that have production in more than one country) has grown due to free trade agreements among nations. One such example is the North American Free Trade Agreement (NAFTA). What are the economic effects of NAFTA?

Verified Answer :

nerfwarrior

Twenty years after its implementation, the North American Free Trade Agreement, or NAFTA, has helped boost intraregional trade between Canada, Mexico, and the United States, but has fallen short of generating the jobs and the deeper regional economic integration its advocates promised decades ago.

Although NAFTA allows the economies of Canada, Mexico, and the US to become intertwined with one another, it takes away the need for competition, which runs markets. NAFTA elimnates all tariffs, which is good in the perspective of the buyer, but this eliminates compensation of the domestic creators of the goods. The purpose of a tariff is to raise the price of imported goods so that the sells of the same domestically made product can increase. Without tariffs, the cheaper, imported goods will be sold. This, eventually, will lead to an increase in total imports and a decrease in total exports which would cause the aggregate demand line to shift to the left, indicating a decrease in GDP over time for the country that is importing a plethora of goods. The country that is supplying these goods would see a right shift in aggregate demand, meaning an increase in GDP, due to an increase in net exports.

Hope this helps, I'm a senior in high school and just finished my economics course with an A. :)

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