The Effect of NAFTA on the US Auto Industry

As the global economy has matured, and competition and trade deficits have soared out of control, there have been actions taken by much of the industrialized world in an effort to balance the scales so to speak and provide equal opportunities for all of the trade partners involved in international transactions. An example of this is the North American Free Trade Agreement, or NAFTA. While NAFTA's intention has been to create a trade balance, there have been other side effects; this is especially true in the United States auto industry. In this paper, the cause and effect of NAFTA on the US auto industry will be explored in order to better understand the situation overall.

The Premise of NAFTA in the Auto Industry

Ostensibly, NAFTA was enacted with the end goal of giving the major industrial nations of North America, namely Mexico, Canada and the United States, the ability to competitively compete with the rest of the world, and conduct business in such a way that each of these nations would mutually benefit (Koechlin, et al, 1992). Quite literally, the idea was for the nations to work together rather than trying to undermine one another, thereby providing a level of strength in numbers. Especially, this was envisioned for the automobile industry of the US, with NAFTA being used as the catalyst to allow the US to export automobiles to Mexico and Canada, increasing the market for American automobiles, and giving the often struggling industry a chance to revive and grow from where it was originally struggling in light of foreign competition, cheap labor from other nations, and so forth. However, the reality is that NAFTA achieved exactly the opposite effect when discussing the US automobile industry.
History of the US Automobile Industry Leading up to NAFTA