Lucas Koons
Bus 207
Professor Lewis
October 28, 2016
Free Trade Agreements
A free trade agreement is a treaty between two or more countries to establish a free trade
area where commerce between goods and services can be conducted across their borders without
tariffs or hindrances. In general, the purpose of a free trade agreement is to encourage
international trade between two countries. Free trade agreements have proved to be one of the
most effective ways to open up foreign markets to U.S. exporters. Trade agreements reduce
barriers and enhance the rule of law in partner countries. The reduction of trade barriers and the
more stable trading environment has made it cheaper and more efficient for U.S. companies to
export their products (Free).
A preferential trade agreement is a trade pact between countries that reduce tariffs
between the countries that sign the agreement. This helps with economic integration. Although
tariffs are not completely eliminated, they are lower than they would be if the countries did not
have a preferential trade agreement. Also, a preferential trade agreement may just be unilateral
for a certain number of years (Preferential). A free trade agreement and preferential trade
agreement differ in that a free trade agreement eliminates all tariffs and barriers, while a
preferential trade agreement only lowers the tariffs and regulations.
The United States has 14 free trade agreements in effect with 20 countries. One of these
free trade agreements is the North American Free Trade Agreement (NAFTA). The parties of
NAFTA are the United States, Canada, and Mexico. Overall, the North American Free Trade
Agreement has been beneficial to all three countries by increasing trade among them. Many
economists agree that NAFTA has provided benefits to the North American countries. The trade
among the United States, Mexico, and Canada increased from $290 billion to $1.1 trillion in the
first two decades of the trade agreement. During the same time period, U.S. foreign investment
in Mexico stock has increased from $15 billion to over $100 billion.
Since NAFTA has been put into effect, U.S. trade has more than tripled with Canada and
Mexico, and is growing more rapidly than U.S. trade with the rest of the world. Canada and
Mexico are the main destinations for U.S. exports. It is estimated that 14 million U.S. jobs rely
on trade with Canada and Mexico; however, NAFTA has been detrimental to the U.S. in some
regards. For instance, NAFTA has caused U.S. job loss and wage stagnation. Many U.S.
companies have production in Mexico for lower costs. It is estimated that the U.S. has lost
