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NAFTA and the Monetary Union

NAFTA and the Monetary Union

Not each member of the NAFTA is ready to join a monetary union of the North America. This is due to the disadvantages that some member countries face upon joining of such a union.

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The first disadvantage concerns the difference in monetary wages of workers within the member countries. Wages of workers in Mexico are lower than wages of workers in the US. This implies that creating common monetary union will result in a shift of jobs to Mexico. This is because employers would want to utilize the advantage of the low cost on wages in Mexico (Scott, 1992).

Three implications that will arise because of shift in jobs to Mexico are loss of jobs, worker displacement, and loss of industry. In loss of jobs, the employers in US will be unable to compete with the same companies offering the same services in Mexico thus opting to reduce the number of their employees. Worker displacement will occur when there will be a need for workers in the US to acquire extra skills in order to retain their jobs. Loss of industry will occur to firms that will be unable to compete with those firms that enjoy low cost of wages. This leads to a complete shutdown of companies (Scott, 1992).

The elimination of 50% tariff on US exports and 70% tariff on Mexican exports to the US is a hindrance to monetary union (Negroponte, 1991). The US is a larger manufacturer compared to Mexico and Canada. A 50% tariff waiver on US exports to Mexico is so large that it leads to excessive exportation of US products to Mexico. Flooding of US commodities largely reduces the market for Mexican manufactures (Reich, 1993).

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The removal of limits on investments will flood the US investors in Mexico and Canada since it is relatively cheaper for investors to do their business in these two countries than in the US. The Mexican and Canadian investors will be disadvantaged due to the high cost of running an investment in the US (Pasztor, 1993). These are among the facts that make the monetary union of North America unattainable.

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