If NAFTA Became a Common Market

This post is a thinking game and I would love to learn your thoughts in the comment section below! I will be applying the ideas from yesterday’s post and putting forth my thoughts and limited analysis on a completely fictional situation. If you don’t know what a common market is, please read the post from yesterday. I will be adding a terms and glossary page to this blog soon for future reference.

Overview

If NAFTA became a common market, I guess first, we couldn’t call it NAFTA anymore, right? So now it’s like, NAC-M (chem jokes anyone?). Once nations integrate to the point of a common market then, there are free trade agreement agreements between the US, Canada, and Mexico; there are penalties if these countries import from someone else; and finally, the addition with a common market is that the factors of production labor and capital can travel freely back and forth across borders. Of course, it’s near impossible that this would ever happen, but the thinking exercise is fun.

Political Perspectives

There will be a separate post on realist and liberal perspectives in the political economy sphere later, but for now, what you need to know for this thinking exercise is that liberals believe trade is good, and would believe that a common market is a situation in which everybody can benefit even marginally. Realists would hate this idea of a common market, because anytime that their home country is not gaining, then they think they’re losing. These ideas come from microeconomics when we talk about absolute and relative gains.

Microeconomics Level

On the micro level, perhaps wages and purchasing price parity would equalize. That’s the first thing that comes to my mind. This would obviously take some time to occur, but  eventually after things had settled, then this could be an effect of a common market since labor especially, has the ability to cross borders. From this perspective, it seems like individuals might profit quite a bit from this level of integration. It would expand their job search area and give them more opportunities, people could become more diversified and experience more culture (more on that later), and overall on the individual level it seems like there would be less barriers to opportunity, and I don’t just mean for people coming into the US. Perhaps some Canadians and Americans would want to go to Mexico for work and warmer weather, it might also increase the amount of foreign influence these countries would receive from outside the common market. For example, if a Japanese citizen has a work-study in Canada, then maybe they are no longer restricted to Canada and can travel to the US or Mexico too in order to strengthen their skills.

Macroeconomics Level

On a macro level, I think there would be an equalizing effect on capital (a factor of production) and the Human Development Index (HDI). The interesting component in NAFTA is that it is two developed countries aligning themselves with a less developed country. In a free trade agreement, that means that Mexico has less barriers to trade than it would normally have with the US and Canada. But in a common market, Mexico is probably the country most affected by this level of integration. I tend to be a positive person, so I would say that hypothetically, because the influence from the two developed countries is larger, then that could have a healthy impact on both Mexico’s economy and people. It would open itself up to being influenced by the other two countries and while the change might not be immediate, give it a decade or two and becoming a common market could be the catalyst needed to bring Mexico into the folds of a developed country.

Barriers

But of course there are a lot of real world barriers to this sort of integration. While these countries are all relatively close to one another, they have had extremely different paths to progress. Barriers between the US and Canada would include items such as healthcare and immigration laws. I’ve been to Canada and it seemed much more culturally and ethnically diverse than the US. As for the US and Mexico, the US has more infrastructure than Mexico currently. I mean infrastructure like infrastructure for an economically strong society. We have expensive universities that pump out educated people and we have a government in place that impedes blatant corruption. I know that Mexico has universities as well, good ones too, but for example, if you become a doctor in Mexico, you still have to take the tests to become a doctor in the US. In order for a common market to work, certain rules and restrictions would have to be homogenized in order for there to be true ability to cross borders both with capital and labor. Even if some Canadians wanted to be educated in a US university, currently the tuition per semester in Canada is $3,000 (and they’re calling that a record high) while the lowest cost of a university year (for a state resident at a public college) in the US is $10,000. Even an individual in a developed country like Canada would have a hard time justifying that price difference. Mexico university costs range anywhere from $1,600 to $16,000 per year.

So when we’re looking at capital and especially labor crossing borders, it is highly unlikely that NAFTA will ever become a common market. Because, while there are some advantages there are too many barriers that stand in the way of individuals being able to be competitive in another country.

Disclaimer: I’m not an expert (yet) on anything I talk about, and please don’t mistake me for giving advice. I’m a student that wants to learn about economics which is a really important topic. All thoughts in this post were purely hypothetical. Please learn with me so we can be more informed citizens.

*The way I found the costs for universities in countries was by typing in “average cost of university in …”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s