Trump Ending NAFTA Would Be A Mistake

nafta/index.htmlhttp://money.cnn.com/2016/07/06/news/economy/trump-nafta/index.html

Trump Ending NAFTA Would Be A Mistake

In the article above, Trump threatens to pull out of NAFTA if he can’t negotiate better terms with Mexico and Canada. He claims that it has cost millions of Americans their jobs and calls it the “worst trade deal in history.” He wants to ensure that we put “America first,” and to do that we must limit U.S. involvement in global trade. He plans on putting tariffs on the U.S. largest trading partners and going after American companies like Ford, that build across the boarder. 

Trump claims that NAFTA has destroyed our country by taking good-paying manufacturing jobs across the boarder. His argument that the amount of jobs lost is due to NAFTA is inaccurate. There are other issues like the growth of technology that has eliminated jobs as well. The technology change has been a big factor in why many Americans have been let go. It has boosted productivity and requires more skills and training, so for the less-educated Americans it leaves them with no other option but to be without a job. Terminating NAFTA, as Trump wished would only hurt the U.S. Eliminating the deal would not guarantee jobs back and the U.S. could potentially end up losing more because of it. Trump wants to attack American companies like Ford by threatening to tax 35% on the cars made in Mexico and sold in the U.S. However, that would only end up hurting American consumers, rather than helping them as he claims. Although Ford will be opening up over 2,000 jobs in Mexico, they will not be terminating any U.S. jobs. 

Trump like many others who agree with this notion are missing the advantages that NAFTA has provided. The U.S., Canada, and Mexico have quadrupled from $297 billion to $1.14 trillion since the deal unfolded. That alone allowed a boost in profits, jobs and economic growth for all three countries. NAFTA also eliminated all tariffs between all three countries and reduced the cost of trade. That benefited consumers by lowering prices. The sectors that benefited from the economic growth were largely agriculture, automobiles, and services. This makes everything more globally oriented. Without trade deals, America would lose access to overseas markets. Despite the fact that Trump thinks NAFTA has cost American their jobs, it has actually provide countless jobs for Americans as well. 

Whether or not Trump decides to pull out from NAFTA or negotiate a "better deal," he is not all to certain on what the implications of this would actually be. The bottom line is that terminating NAFTA would just end up hurting the U.S. more than benefiting it and helping it grow. 

Systematic Disadvantages

http://studentorgs.kentlaw.iit.edu/jicl/wp-content/uploads/sites/5/2014/01/BohlSubmissionWTOFinal.pdf

While I was abroad I had a class at the WTO in Geneva, Switzerland.  Here, I met with WTO employees and listened to a lecture on the Dispute Settlement Body.  The lecture sparked debate on the issue of the Dispute Settlement Mechanism (DSM) disadvantaging developing nations.  The link above is a report analyzing the problems developing countries have in accessing WTO dispute settlements.  The report is 71 pages long, however, the introduction summarizes the author’s arguments adequately. 

On paper, WTO negotiators intended for the DSM to be used by developing and developed nations equally because the system does not treat countries differently based on power and influence.  It was meant to encourage developing countries, rather than disadvantage them.  However, just because the system is equal, does not mean it is equitable.  Developing countries with smaller economies (I say smaller economies because India is considered a developing country, however, they have a large GDP and have utilized the DSM frequently) tend not to bring disputes to the WTO for many reasons.  This report states three main reasons why developing states do not participate: lack of resources, lack of institutional capacity, and lack of political will.  Essentially, court cases require money, resources, and time.  A major part of dispute settlements is fact-finding, which costs a lot of money and relies on complex legal capacity.  Developed nations have the capacity to take on dispute settlement cases, whereas least-developed nations do not.  According to this study (the link), only one least-developed nation, as defined by the United Nations, has ever initiated a complaint.  Additionally, developed nations are the minority within the WTO, yet they account for more than 80% of all disputes.  This is a very telling fact about the systematic disadvantages of the DSM.      

In class we discussed the issue of legitimacy.  Developed countries, specifically the United States, comply with DSM rulings because it strengthens the legitimacy of the WTO in addition to maintaining a liberal world order.  This report highlights a different side of the issue of legitimacy.  If there is systematically unequal access to dispute settlements, then that too threatens legitimacy (Bohl).  The statistics in the Bruce Wilson piece “Compliance by WTO Members with Adverse WTO Dispute Settlement Rulings: the Record to Date” do show that the DSM can be helpful for many nations, however, it does not touch on the fact that for many developing nations dispute settlements are not an option financially.

The Demographic Trap

https://www.theguardian.com/global-development/2016/aug/25/high-birth-rates-poverty-undermine-generation-african-children-odi-report

         The article from the link above discusses how Africa will soon make up about half of the world's poorest population by the year 2030. In its entirety, Africa is the second largest continent in the world. Although the economy is improving, 1 out of 5 children born in Africa will live in poverty due to extremely high fertility rates and severe inequality. Although it is estimated that the number of African children living in poverty will be reduced from 216 million in 2012 to 148 million by the year 2030, their numbers are still going to make up half of the world's poorest individuals. Other countries are developing at much faster rates and are able to get their people above the poverty line through economic growth and new developments. Roughly, every woman in the continent is having about 6 children. The reasoning behind this increased fertility derives from the fact that it is very hard to receive contraceptives in Africa. Moreover, men are more resistant to such barrier methods because it infringes on their masculinity and overall culture. In addition, child marriages and rape are becoming rampant as well. With women giving birth at a much lower age, they have more time to reproduce throughout their lifetime.
         In this weeks reading, Sachs explains why developing countries continuously fail to achieve economic growth. One of the points he elaborated on was the Demographic Trap. Overall, this refers to developing countries having high birth rates and low death rates. In the end, the population rises in a country that cannot support such tremendous growth. With too many babies being born, each child that comes into the world gets less and less. The developing country does not contain enough resources to help stabilize their country's growing population. A continuous cycle is occurring that cannot be stopped nor reduced. Individuals standards of living are also decreasing as the population rises; people are in turn relying on the children being born for economic soundness.
         Overall, I believe the change has to come from the parents who are giving birth to these children. Instead of relying on their children to get them out of the Demographic Trap, they should focus their attention and efforts on themselves. Women in Africa should receive a higher level of education, or any sort of education, in order to improve their lives and become more pertinent members of society. They can utilize their information and teach their own children. With more educated individuals in the continent, Africa will slowly rise from the Demographic Trap and start developing at an increased rate. In America, women are having children at a later age or even sometimes not having any children at all. They are focused on their work life and their success rather than solely on having children and reproducing. They contribute more to society and have a plethora of knowledge under their belts. Africa needs to follow this trend and increase the education and schooling in the continent in order to escape from this trap.

How Do We OUT Outsourcing?

http://www.usnews.com/news/business/articles/2016-04-05/ford-to-build-small-car-factory-in-mexico-adding-2-800-jobs

Recently, Ford Motors announced that it will be funding a $1.6 billion manufacturing plant in Mexico. The company plans to shift its small-car production abroad in an effort to increase profitability while cutting major production costs. Ford is expected to create about 2,800 jobs for the Mexican economy during the process. In the past decade, auto production in Mexico more than doubled and economists predict it to increase another 50% by the year 2022. This means Mexico would be outputting around 5 million Ford vehicles.  Contrary to this, auto production in the United States is only forecasted to increase by a slight 3% which would bring the U.S output to 12.2 million cars. The article quotes Joe Hinrichs, Ford’s President of the Americas, “Ford is a global automotive company that builds cars where it makes the most sense for the business.”  Donald Trump has been a strong critic of Ford due to their plans to move activities offshore ever since last summer. The presidential candidate continues to be vocal about outsourcing and intends to amend the 1994 North American Free trade agreement by placing tariffs and potentially taxing Ford-esque companies.

At a first glance the article reminds me of the Hecksher-Olin factor model.  Although this is a matter of foreign direct investment the model can be used to show the gains and losses causes by Ford’s business decision. For example, Mexico has a comparative advantage in making small gas-electric hybrid cars relative to the U.S. and may also have an advantage in land.  Due to these circumstances, Ford has agreed to send large magnitudes of capital abroad.  The instant winners are obvious. Ford gets to save money in the long run and the Mexican laborers will have 2,800 more job opportunities.  In reciprocation, outsourcing will cause there to be 2,800 less jobs for American workers. Furthermore, the production forecasts in coming years will only increase the number of American jobs lost.

The article also mentions that a four-year contract was signed between the UAW and Ford Motors. The agreement is supposed to guarantee the production of new vehicles in America by using a $700 million investment to secure 3,924 jobs. Ford’s offshore plans are causing the union workers to unite to secure their own future incomes at a time when outsourcing is reoccurring theme. The concept of losers organizing to block trade is applicable here. The union did its best to secure a future for themselves when the direction of the business seems to be going against their own interests. With that said, are there legitimate ways to deter outsourcing?  Ford did invest $700 million in the states to help Americans, but that investment seems negligible compared to the billions it plans to take elsewhere. Trump says that he will look to punish companies for acting like Ford did. What do you think he will do? Will these costs of outsourcing ever be enough to actually keep American jobs in the states?  

Western Pressure

https://www.thenation.com/article/politics-water-bolivia/

While doing the reading and discussing the material in class, I was drawn towards the criticisms of the Washington Consensus.  A few years ago I wrote a research paper critiquing the World Bank and IMF in their efforts towards economic globalization. What I wrote about in this paper relates quite well to the issue of the Washington Consensus being the West telling developing nations, specifically Latin America, what to do.  Moreover, the case, which is attached in the link above, relates mainly to the privatization aspect of the Washington Consensus.  The link posted above is an article about how the World Bank and IMF failed in Bolivia by privatizing their water.

To summarize the case, the World Bank with efforts from the IMF pressured Bolivia to privatize the water system in Cochabamba, one of the country’s major cities.  Ultimately, this recommendation from the World Bank caused a multitude of problems for the people of Bolivia.  Citizens were spending half, if not more than half, of their monthly income on water.  People could not afford water anymore.  This resulted in massive protests and riots and great dissatisfaction amongst the people.    

In class we discussed some of the critiques of the Washington Consensus such as; it doesn’t always work, there is too much focus on low inflation, free trade does not always help, etc.  A major critique of the Washington Consensus is that it is a list of western ideals being imposed on developing nations.  One of the points of the Washington Consensus is privatization.  From what I have studied in the past, this has always been a good idea on paper, but is never implemented properly, which continuously results in negative outcomes for developing nations.  The approach and implementation is usually pursued too quickly for these nations since they do not have enough resources to take on such an initiative.  Privatization and other aspects relating to the Washington Consensus seem to be used in a one-size-fits-all kind of approach.  The West recommends policy initiatives that are not specifically tailored to each country’s needs.  In doing so, what is meant to be helpful ends up being harmful.  This is just one point of view when looking at the aspect of privatization, there can be positives; however, there have been many instances where policy initiatives from World Bank, IMF, or other countries have been ill advised.  Developing nations are not all the same; therefore they shouldn’t be developed in the same way.  More country-specific initiatives would work more effectively and efficiently for development.         

To Brexit or to stay?

LINK: http://www.bangkokpost.com/business/world/1083572/britain-faces-free-trade-headache-after-brexit-vote

        The European Union consists of 28 states from Europe who agreed to partake in one single market. This implies that the members of the union have a set of laws and regulations that they are required to follow regarding trade and other internal matters. Recently, a huge member of the European Union has decided to cut ties with the politically economic organization: Great Britain. Their reasoning for the decision is so that the country can partake in free trade, that is trading internationally without any restrictions. This article from the Bangkok Post explains how Britain's decision to leave the European Union is not set in stone. Officially, they are still a part of the organization. Furthermore, it could take years for a withdrawal agreement to be written and for the separation to be finalized. Not only is the process a rather controversial and serious matter, but Great Britain was making a tremendous amount of money while  apart of the European Union. After separating, they will have to handle international trade matters and agreements on their own; they have not done so in over 40 plus years. The country's inexperience coupled with the extreme risk of losing millions upon millions of pounds is very concerning and unpredictable. One has to think about the implications that leaving such a powerful union has: is free trade worth it?
        After the vote was passed to leave the European Union, the 'Brexit' decision has been a main topic concerning the world's political economy. Currency values could change tremendously, and trade as we know it could be transformed completely. When I stumbled upon the article, it made me think back to John Williamson's Washington Consensus of 1989. The 10 policies were established to assist developing countries with a poor economic system. Throughout the points, talks of tax reform,trade liberalization, and privatization were discussed. Basically, it proposed an idea of free trade and an opening up of markets. Similar to the 'Brexit' vote, the Washington Consensus came with some critiques. Sometimes free trade doesn't always help, and liberalization can become an end instead of a solution.
        After learning about the Washington Consensus in class and researching more about the European Union, I am still not sure if Britain's decision to leave the European Union is the right one. Although tariffs and other monetary taxes would be eliminated, and Britain could now open up trade with other actors, there is such a huge risk in doing so. They are not a poor developing country like the ones the Washington Consensus aimed to help. Britain is a prosperous country and has had even more prosperous relations while being a key member of the European Union. It almost seems to me that the country has gotten a bit greedy. They could potentially make even more money by opening up markets and eliminating regulations, yet a 360 could occur and Britain could lose everything; they would no longer have the European Union to back them up and the country is on its own. Are they capable of handling trade relations and decisions on their own? Moreover, it could possibly tarnish relations with other powerful countries. Is the risk really worth the reward? Britain is not only choosing to change their own economy, but rather Europe's whole economic system and other nations as well.