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During the beated discussions in the United States about the North American Free Trade Agreement (NAFTA), many observers stated that adoption of the agreement would lead to a surge of investment from the United States into Mexico because of Mexicos much lower wages. From the standpoint of tariff elimination alooe, bow might NAFTA rednce the amount of U.S. investment in Mexicol?
The pominal tariff rates on the 10 imports into the fictional country of Tarheelia, as well as the total import value of each good, are listed here: Good A Good B Good C Good D Good E Good F Good G Good H Good I Good J Nominal Rate 10% 5% Free 30% 2% 2.5% 15% S0.50/unit 40% $2.50/unit I İlae $400 $600 S500 $300 $200 $400 S100 $400 (100 units) $200 $100 (10 units) (a) Calculate the unweighted-average nominal tariff rate for Tarbeelia. (b) Calculate the weighted-average nominal tariff rate for Tarheelia.
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AnsweY owen that cwith high me xican bavifFs in place potential U-S ex porter (presumably of capitol-intensive 900ds) Found it diffcu it to compete pvice-cu ,se ω1th Similar me xican pvoduct As mexico has welcomed Foreign 、nvestment ln recent yeaYS·Capital FlouS Substituted for U-S erport that had been kepf ut by the high tariffs. As tvade restriction ave reduced under N AFTA,U-S Capital-intensive exports coi beCame competitive in mexico velueing the need toinvest in mexicoin order to Self in mexican markets Thus the expected ode aldjust ment hat should accur cunder WAFTA could actually ao rk to vedure U.S. İ Investmet

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