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Which Statement Describes The Economic Impact Of This Trade Agreement

Since NAFTA, trade between the United States and its North American neighbors has more than tripled and grown faster than U.S. trade with the rest of the world. Canada and Mexico are the top two destinations for U.S. exports, with a share of more than one-third. Most estimates conclude that the agreement has increased U.S. gross domestic product (GDP) by less than 0.5%, which equates to an additional $80 billion over the U.S. economy, with full implementation or several billion dollars of additional growth per year. This view became popular for the first time in 1817 by the economist David Ricardo in his book On the Principles of Political Economy and Taxation. He argued that free trade broadens diversity and reduces the prices of goods available in a nation, while making a better part of its own resources, knowledge and specialized skills. Others argue that the goal of free trade is to promote competition on the basis of comparative advantages, maximizing global efficiency. Practices such as subsidies or monetary manipulation are an abandonment of this competition and can lead to an outcome in which the less efficient producer dominates trade and thus reduces overall well-being.

In these circumstances, a countervailing measure, such as the establishment of a countervailing duty, could restore a “level playing field” in which a trade can be made on the basis of comparative advantages. Thirty-one years after the publication of The Wealth of Nations, David Ricardo introduced a very important change in theory in his On the Principles of Political Economy and Taxation published in 1817. [3] Ricardo noted that trade between nations will take place, even if a country has an absolute advantage in the manufacture of all products marketed. In addition to trade diversion and the creation of trades that have essentially static effects, participants in free trade zones and union unions also aim for dynamic benefits, such as expansion production, as companies take advantage of the growing size of the market to increase production and improve efficiency when firms adapt to increased competition. Access to a larger market is particularly important for small countries whose economies are too small to warrant large-scale production. Neither the worst fears of Canadian trade opponents – that open trade would erode the country`s manufacturing sector – nor the highest hopes of NAFTA proponents – that this would lead to a rapid increase in productivity – have been realized. Employment in Canada`s manufacturing sector has remained stable, but the productivity gap between the Canadian and U.S. economies has not been closed: until 2017, Canada`s labour productivity remained at 72% of the U.S. level. Then Adam Smith challenged this dominant thought in The Wealth of Nations, published in 1776. [2] Smith argued that if one nation is more efficient than another country in manufacturing a product, while the other nation is more efficient in manufacturing another product, then both nations could benefit from trade.

This would allow each nation to specialize in the manufacture of the product, for which it had an absolute advantage, and thus increase total production over what it would be trade-free.


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