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Sunday , 26 March 2017
NAFTA a major success for all partners, could be improved: Scotiabank

NAFTA a major success for all partners, could be improved: Scotiabank

There’s no doubt where one of Canada’s major banks stands on the North American Free Trade Agreement (NAFTA), the one that President Trump has said he will renegotiate to make it more favourable to the US. Scotiabank Economics calls NAFTA a major success story for all three of the countries that signed the pact, with North American trade more than tripling since 1994. Millions of North Americans depend on NAFTA for their livelihood, says the bank, and the continent has remained competitive in attracting capital and retaining jobs. The trade agreement, says the bank with a wink to Donald Trump, has made North America “great(er).”

According to Scotiabank, North America now accounts for nearly 28 per cent of global GDP, despite having just 6.5 per cent of the world’s population.

Cross-border investment has expanded “massively” under NAFTA as well. Canada’s foreign direct investment in Mexico, for example, has increased over twenty-five times, mostly in manufacturing, media and mining.

Jobs have also been created in all three countries. The Scotiabank report does not give numbers for Canada, but in the US, it says, the net annual increase in jobs owing to NAFTA was about 130,000 through the first decade of the agreement. It has slowed since then but remains a net contributor to US jobs, the bank says.

Since it became effective in 1994, the North American Free Trade Agreement has been a major success for its three member countries, the United States, Canada, and Mexico. NAFTA has expanded continental trade and investment, it has generated economic growth that has created jobs and boosted living standards, and it has improved the global competitiveness of North America’s three largest economies. NAFTA has not been responsible for a net decline in manufacturing jobs in the United States and Canada, nor has it led to a hollowing-out of labour, environmental, or intellectual property standards.

Source: Scotiabank Economics

The integration of supply chains, especially evident in the auto sector, has also benefited Canada and the US. The fact that Mexican workers earn just 15 per cent of what US workers earn has been a benefit, not a disadvantage, according to the bank. The Mexican auto workers, it says, generally do lower-skilled work, while Canadian and US workers focus on higher-value added segments. This has “likely” kept some of those higher-value manufacturing jobs from moving to lower-cost economies elsewhere.

Nevertheless, manufacturing jobs have disappeared in both the US and Canada, though this is not happening because of liberalised trade. Rather it is technological innovation and enhanced productivity that are responsible for the decline of manufacturing as a share of employment. Manufacturing jobs are disappearing everywhere. They are not shifting from high-income economies to the low-income world. In fact, the bank has statistics to show that manufacturing has maintained a near-constant share of US GDP since the 1950s. Canada and many other high-income economies have not fared so well, with manufacturing’s share of GDP dropping by 7 per cent in the past two decades or so.

Despite the America first stance taken by the current administration, Scotiabank sees a reopening of NAFTA as a chance to improve it for all three members, particularly given that Mexico’s population is younger and becoming increasingly wealthy, while the US economy is “rich but ageing.”

About Josephine Nolan

Josephine Nolan is the chief editor of Condo.ca—Canada's Condominium Magazine. You can reach Josephine via our contact form. She reads all her mail.

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