Question

1. NAFTA-NAFTA will soon be replaced by a new trade agreement between the U.S. and Mexico. Evaluate the exchange rate-trade effect around NAFTA’s inception in 1994. Answer the questions below.

   1. Discuss how the bilateral trade balances between the U.S. Mexico

   2. have changed pre- and post- NAFTA. (Hint: trade deficit or trade

      surplus?)

   3. How has the $/peso exchange rates changed from 1990 to 2001?

   4. Comment on the appreciations and depreciations of both currencies,

      pre- and post-NAFTA.

   5. Discuss possible linkages between NAFTA and the trade balance

      between the U.S. and Mexico.

Answer 1

NAFTA has been replaced by new act called USMFCA with newer guidelines.

The 1994 deal NAFTA was breakthrough event which opened up trade deals within US and Nexico and Canada. Pist 2001 Chinese entry into WTO caused rising exports to Us and Mexico.

In 1995 to 2001 we saw massive export of Mexican hoods because if higher immigration to Mexico and because of low cist advantages Mexico produced more and exported them causing US trade deficit to grow higher and higher.

As results, the Mexican Peso and US dollar have floated and fluctuated and caused Mexican Peso to depreciate before of rising exports.

However things pist NAFTA breakup has changed drastically as 2009 crisis rendered Us economic conditions ineffective. This caused major depreciation of US Dollars because of falling interest rates. Productivity was much lower and hence exports shrinked causing rise intrade deficit.

The Dollar to Mexican peso has fairly remained pegged and stabke between 1 USD to 14.8 to 15. 7 Mexican Pesos levels.