Online Lesson

Trade in Colonial America / NAFTA

Introduction:

Concepts from history and economics often seem remote and abstract. Most students find it easier to grasp such concepts if they can relate them to events that have occurred recently. This lesson revisits the lesson "Understanding the Colonial Economy," from Eyes on the Economy. It examines ideas from that lesson in light of NAFTA, the North American Free Trade Agreement. It seeks to clarify the role and effect of NAFTA in the Mexican and U.S. economies.

Review Understanding the Colonial Economy, from Eyes on the Economy: Part I. In this lesson you learned that the colonists produced goods they were best able to produce, relative to their resources, and goods they could export at a competitive price. Then they traded these goods and earned more income. Additional income enabled the colonists to expand their output. Through trade, both the Europeans and the colonists gained more products and were better off than if trade was not conducted.

Task:

Examine the role and effect of NAFTA in the Mexican and US economies.

Process:

Activity 1

Look at the quote from Adam Smith and answer the following questions:

1. How does Adam Smith's philosophy relate to what you have learned in, "Understanding the Colonial Economy"? answer
2. Do you think Smith's theory still holds true today? answer
3. Explain why you think Smith's theory still does or does not hold true today. answer
4. Review the following definitions:

• Tariff: A tax levied on goods imported into a country. For example, a 10 percent tariff levied on an imported car priced at $20,000 would increase the price to $22,000.
• Quota: A specifies maximum amounts of goods that can be imported in a specific period of time.
• Subsidy: A payment made to a producer. For example, the Wool Act, in 1990 provided for a subsidy rate of 127 percent. The farmer who got $1,000 for selling wool in the market would receive an additional payment from the government of $1,270.

Recently, the United States, Mexico and Canada reached an agreement called the North America Free Trade Agreement or NAFTA. NAFTA was ratified by the U.S. Congress in 1993. Its purpose is to remove some tariffs and quotas in order to improve trade among the United States, Canada and Mexico. Look at the key points  of NAFTA.

Activity 2

Look at the websites below and answer the questions.

www.ustr.gov/Trade_Agreements/Regional/NAFTA/Section_Index.html

Use the web sites suggested above to gather data on the following:

• GDP figures for the United States and Mexico between 1993 and 1998
• Mexican exports to the United States in dollars between 1993 and 1998
• U.S. exports to Mexico in dollars between 1993-1998
• Exports from one U.S. state to Mexico in dollars between 1993-1998 (the state will be assigned by the teacher)

After collecting this data, answer the questions below.

1. What is the annual trade surplus for Mexico in trading with the United States since 1995?
2. What are the implications for Mexico?
3. Given the two-way trade between the United States and Mexico, what has been the percentage growth in trade between the two countries since the implementation of NAFTA?
4. How could this increase in trade affect job creation in Mexico?
5. In time, how might an increase in jobs affect wages and worker skills?
6. How would the reestablishment of trade barriers between Mexico and the United States affect the following: Mexico's economy, the U.S. economy, the U.S. consumer?

Conclusion:

Remember that quote from Adam Smith? He pointed out in 1776 that if countries specialize and trade, all parties benefit. Knowing this, how do you think NAFTA has affected trade between the United States and Mexico? What effect do you think NAFTA has had on the economic welfare of both nations? Explain. answer

How might NAFTA affect you and your future? answer

Assessment Activity:

Turn in your work on Activity 2 for assessment.