The Impact Of NAFTA On The Automotive Industry

Introduction

Mexico and US share a 2000-mile border, thus it is no surprise that the bilateral relations between those countries are strong and vital, having a tremendous impact on the lives of millions of people. The scope of their relation goes beyond diplomatic relation, it entails extensive commercial, cultural and educational ties. The value of 1,4 billions of dollars is the amount of two-way trade nowadays. Indeed, it is a relatively high number which is only possible due to several trade policies and agreements arranged in the past.

In fact, one of them was the NAFTA which has been in effect since 1994. Through NAFTA, the United States, Mexico and Canada form one of the largest free trade area in the world, with about one third of the

In fact, in 2016 exports from the US of auto and auto parts were the 3rd largest, while imports from the US of the same products was the number one largest. This sector plays an important role in the economy and it is a substantial market for other industries (like raw materials such as textiles, rubber, steel aluminium). The performance of the auto industry is important not only by itself but also its influence over other activities. Therefore, the ultimate goal is to investigate on this particular industry to evaluate the positive repercussions as a result of the agreement. Furthermore, this paper is required to answer questions such as: Are the arising controversial issues about NAFTA justified? Is it really a win-win

In fact, the pattern of trade pre-NAFTA was showing US in deficit while Mexico presented surplus in what account balance is regarded (Exhibit 1 and 2). NAFTA impacted both countries as on one hand, Mexico would attract greater flows of foreign investment and spur economic growth. On the other hand, US saw the NAFTA as an opportunity to expand the growing export market to the south while also finding a political opportunity to improve its relationship with Mexico. In fact, trade between the two countries has more than tripled since the agreement entered into force 1994 (exhibit 3).

1.1. Liberalisation of trade

U.S. exports to Mexico increased from $41.6 billion in 1993 to $229.7 billion in 2016, an increase of 552%. Moreover, even after sharp decrease in 2009 caused by the global economic downturn, U.S. imports from Mexico still increased to $294 billion in 2016 (exhibit 4). But NAFTA has not only engaged trade liberalisation, it also allowed for liberalisation of manufacturing. Manufacturing industries such as that of automobile has seen its global competitiveness sore thanks to the development of supply chains in Mexico; research estimates that a U.S. import from Mexico contains 40% U.S. content.

1.2. Weak effects on