1. VOLUNTARY TRADE & NAFTA VOLUNTARY TRADE & NAFTA
Canada:
VOLUNTARY TRADE & NAFTA
VOLUNTARY TRADE & NAFTA

2. STANDARDS:
SS6E5 Give examples of how voluntary trade benefits buyers and sellers in Canada.
Explain how specialization encourages trade between countries.
Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargoes.
Explain why international trade requires a system for exchanging currencies between nations.
Explain the functions of the North American Free Trade Agreement (NAFTA).

3. Specialization, Trade Barriers, Currency Exchange, & NAFTA
Ame
Canada’s
VOLUNTARY
TRADE
Specialization, Trade Barriers, Currency Exchange, & NAFTA

4. Specialization

5. Why Trade?
Voluntary trade occurs when different countries choose to engage in the exchange of goods with one another.
Countries trade goods because no country has all the resources necessary to produce every single thing its people need.
Voluntary trade is good for countries because it lets a country sell its own resources and buy the resources it needs.

6. Specialization
Because countries cannot produce all of the goods/services that they need, they must specialize in what they do best.
Specialization is an efficient way to work, and the cost of items produced is lower.
It increases trade because a country can get what it needs at the lowest cost when produced by someone who specializes in producing that item.

7. How It Works
For example, Canada’s climate is too cold to grow coffee beans, so it imports them from Brazil. Canada also imports soybeans and rubber from Brazil. In turn, Canada exports airplanes and turbo propellers to Brazil because Brazil had insufficient technology in place to manufacture them.
Specialization helps these two countries.

8. Airplane Assembly Line

9. Canada Canada specializes in the following exports:
motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment, chemicals, plastics, fertilizers, wood pulp, timber, crude petroleum, natural gas, electricity, & aluminum.
Nearly 75% of Canada’s exports are sold to the United States.

10. Wood Pulp & Paper Mill in New Brunswick

11. Trade
Barriers

12. Barriers
Trade barriers are natural or man-made obstacles to voluntary trade.
Natural trade barriers include mountain ranges, deserts, rainforests, or lack of access to bodies of water.
In Canada, the St. Lawrence Seaway is closed for several months out of the year due to the climate. Shipping cargo is impossible during this time.
Political trade barriers are policies passed by a government to regulate trade.

13. The St Lawrence Seaway is closed from November to April due to weather.

14. Barriers
Countries sometimes set up trade barriers to restrict trade because they want to produce their own goods and sell them in their own country.
These trade barriers include tariffs, quotas, and trade embargoes.
They are usually meant to help domestic producers remain competitive with foreign producers in the world marketplace.

15. Tariffs Tariffs are taxes placed on imported goods.
They cause the consumer to pay a higher price for an imported item, thus increasing the demand for a lower priced-item produced domestically.
For example, Canada could place a tariff on all imported paper products, thus making Canadian paper products cheaper for its consumers.

16. Quotas
Quotas are restrictions on the amount of a good that can be imported into a country.
Quotas can cause shortages, which cause prices to rise.

17. Embargo Embargoes are a political barrier to trade.
In an embargo, a nation forbids trade with another country.
In recent years, Canada has joined the US and European Union in an economic embargo with Iran in regards to its nuclear program.

18. Currency
Exchange

19. Currency Exchange
Currency is something that is assigned value and can be used to purchase goods and services in a market.
Because countries have different forms of currency, international trade requires a system for exchanging currencies between nations.
Money from one country must be converted into the currency of another country to pay for goods in that country.

20. Bank notes of the Canadian dollar.

21. Exchange Rate
What the currency of a nation is worth in terms of another country’s currency is called the exchange rate.
For example, an exchange rate of 1.34 Canadian dollars to the US dollar means that 1.34 Canadian dollars are worth the same as 1 US dollar.
Foreign exchange makes it easier to trade all around the world.

22. Exchange Rate Against US Dollar
Nation
Currency
Exchange Rate Against US Dollar
Canada
Canadian Dollar
1.34
Mexico
Mexican Peso
18.7
Cuba
Cuban Peso
26.5
United Kingdom
British Pound
.80
European Union
Euro
.90

23. NAFTA

24. NAFTA
On January 1, 1994, the governments of Canada, Mexico, and the United States entered into an agreement called the North American Free Trade Agreement.
NAFTA was written to create a Free Trade Area in North America.
“Free Trade” means that countries may freely trade goods with each other without having to pay a tariff (tax) on those goods.

25. President Clinton signing NAFTA into law.

26. NAFTA
NAFTA lowered trade barriers between the three countries and became the world’s largest free-trade zone.
The agreement opened the door for free trade, ending tariffs on various goods and services, and implementing equality between Canada, USA, and Mexico.
NAFTA greatly increased trade and economic integration in North America.

28. Functions NAFTA’s key functions include: Eliminating tariffs
Removing restrictions on investments
Removing customs barriers at border crossings
Establishing tough standards for environmental, health, and safety regulations
Improving working conditions

30. Positives
Free trade increases sales and profits for Mexico, Canada and the U.S., thus strengthening their economies.
Lack of tariffs has allowed Mexico to sell its goods in the USA and Canada at lower prices.

31. Graph of Economic Growth since 1993.

32. Positives
This makes Mexican products more competitive in these markets and increases Mexico’s profits as it tries to develop its economy.
Free trade is an opportunity for the U.S. to provide financial help to Mexico by making jobs available in factories located there.

34. Negatives
Free trade has caused more U.S. job losses than gains, especially for higher-wage jobs.
People work for lower wages and there are fewer labor regulations in Mexico, so American factories have moved across the border.
Factories, called maquiladoras, are built on the Mexican border and workers are hired there to make goods at a much lower wage than workers would be paid in the U.S.

35. Negatives
Mexico does not have as strict environmental regulations as Canada & U.S., so when factories move across the border, they are contributing to North America’s pollution problem.
Some argue that our borders should be open like the EU does in Europe, while others feel the borders should be closed.

36. Pollution and Debris from a Mexican Maquiladora

37. Today
NAFTA now links over 450 million people producing $17 trillion worth of goods and services.
NAFTA created jobs in the maquiladoras of Mexico and helped build up Mexico's middle class through jobs and cheaper consumer goods.
Trade between US, Mexico, & Canada has more than tripled since 1994.

39. Today Unfortunately, NAFTA still has its problems.
Small farmers in Mexico were put out of business by cheap U.S. agricultural exports.
They were forced to move to bigger cities, adding to poverty, pollution, overcrowding, and illegal immigration to the U.S.
The population of illegal immigrants in the U.S. in 1990 was 2 million, now it's around 11 million.
There is major pollution in the boomtowns that have grown up around the maquiladoras.

40. Poverty in a Boomtown Near a Maquiladora

41. Is NAFTA good for everyone?
The following slides show how different groups have been impacted by the agreement.

42. US Business Owner
American business owners have enjoyed many benefits from NAFTA:
They can move their factories to Mexico and ship the goods to the US with no tariffs.
They do not have to pay the workers in Mexico as much as in the United States.
There are not as many labor and environmental regulations for factories in Mexico.
They can sell their product for cheaper, but still make a good profit.
They have a greater area to sell their product in.

43. Mexican Business Owner
Most Mexican business owners have mixed feelings about NAFTA.
They like NAFTA because they can trade freely.
They can ship & sell their products across the continent without having to pay tariffs.
They have a greater area to sell their products in.
They do not like foreign owned factories because they would create competition.

44. Mexican Gov.
In the early 1990s, Mexico owed a lot of money to the World Bank, to private banks, and to other countries.
Government officials decided the only way out was to completely restructure Mexico’s economy and to focus on exporting.
They believed NAFTA would be good for the economy of Mexico.
They knew that the maquiladoras would provide jobs for Mexicans.

45. Mexican Factory Worker
Mexican factory workers have benefited from NAFTA because it has provided jobs in a country where there were not enough jobs.
Unfortunately, the wages are very low and the working conditions are rough.
Most workers barely make enough money to provide food for their families, even though they work very long hours.

46. Employees work at an American-owned factory located in Mexico.

47. US Factory Worker
As a result of NAFTA, many U.S. manufacturers moved their operations south of the border where labor was cheaper and environmental standards lower.
Many American factory workers lost their jobs because of this.
Unemployment in the U.S. rose after NAFTA went into effect.

48. “In a 1992 debate with President George Bush Sr
“In a 1992 debate with President George Bush Sr. and presidential candidate Bill Clinton, independent candidate Ross Perot famously suggested NAFTA would create "a giant sucking sound" as jobs moved south of the border.”

51. Environmentalist Building factories creates pollution.
An environmentalist would want to make sure the US, Canada, and Mexico all had laws to protect the environment.
Because all three countries are neighbors, air pollution from one impacts them all.
Unfortunately, NAFTA didn’t establish any multinational environmental regulations when it was signed over 20 years ago.

53. Environmentalist
It created the Commission for Environmental Cooperation, which is based in Canada.
It accepts complaints from citizens of the U.S., Mexico, or Canada who believe their government is not enforcing environmental laws.
It takes a very long time for anything to be investigated and solved.
One American-owned maquiladora continued polluting for 10 years after a complaint was filed!

54. US Consumers American consumers have benefited from NAFTA.
Goods made in Mexico cost a lot less because labor is cheaper there.
Goods are also cheaper because there are no tariffs placed on imports.