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After the North American Free Trade Agreement (NAFTA) was signed, trade restrictions between Canada, the United States, and Mexico were eased and cross-border trade increased. What predictions would the Heckscher-Ohlin model make concerning the changes in labour-intensive industries such as textiles in both Mexico and the United States and capital-intensive industries such as steel in both Mexico and the United States, as a result of NAFTA? Explain

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Nusrat Fatima
Nusrat FatimaLv10
28 Sep 2019
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Related questions

A free trade agreement such as The North American Free Trade Agreement (NAFTA) among Canada, Mexico, and the United States is likely to result in ___.

The North American Free Trade Agreement (NAFTA) is a trade agreement between the United States, Canada, and Mexico whose purpose is to eliminate tariffs between the countries and promote all aspects of international trade.

There are many arguments for and against the treaty. One of the arguments against centers on the fact that Mexican industries do not have to meet the same environmental regulations as industries in the United States and Canada. The U.S. and Canada have intervened in the marketplace and tried to internalize some of the costs of pollution by placing regulations on the amount of pollutants that industries can emit.

Opponents of NAFTA point out that pollution is largely a free good in Mexico, and that being free to pollute gives industries in Mexico an economic advantage over those in the U.S. and Canada. Is there anything in what we have studied, particularly in Chapter 14, that can point us towards an equitable solution to this problem while still protecting the environment we all share? What is that solution?

Suppose with free trade, the United States importing a backpack from Mexico costs $10, and the cost of importing a backpack from China costs $9, while a backpack produced in the US costs $14. Before NAFTA (members are US-Canada-Mexico), the US maintained a tariff of $60 against all backpack imports. Then under NAFTA, all tariffs between the US and Mexico are removed, while the tariff against China remains in effect. Assume that tariff does not affect the world price of a backpack.

1. Before NAFTA, the US imported backpack from:

a. China b. Both Mexico and china c. Mexico d. Neither Mexico nor China?

2. Under NAFTA, the US imports backpack from:

a. both Mexico and china b. neither Mexico nor china c. Mexico d. china?

3. As a result of NAFTA, consumers in the US (Loses- Gains - Neither Lose nor gain)? , and the US government (Loses -Gain -Neither gains nor loses) ? tariff revenue. Mexico (neither gain nor lose - gain- lose)? And china (gain - lose -neither gain nor lose)?

4. This is an example of trade (creation - diversion)? Resulting from a regional agreement.

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