Ross Perot added his memorable \"insight\" to the debate over the North American
ID: 1254775 • Letter: R
Question
Ross Perot added his memorable "insight" to the debate over the North American Free Trade Agreement (NAFTA) when he warned that passage of NAFTA would create a "giant sucking sound" as U.S. employers shipped jobs to Mexico, where wages are lower than wages in the United States. As it turned out, many U.S. firms chose not to produce in Mexico despite the much lower wages there. Explain why it may not be economically efficient to move production to foreigh countries, even ones with substially lower wages.Explanation / Answer
Sometimes, even though labor may be cheaper in other countries, it is not wise to produce there. There are a few reasons for this. First, goods created in foreign countries will need to be exported back to the US and will expereince a high tariff reducing the savings the firm thought they gained. In addtion, if firms hire people outside the US, the labor force in the US will suffer, causing unemplloyment to rise. This will also cause inflation in the US economy and will result in a lower than normal growth rate of the US economy. On the other hand, this is dependent upon what type of jobs will be offered in these other countries. For instance, IT techs in India are incresing. They all have high education and there are no tariffs for customer service representatives overseas. This still does decrease the potential growth of the economy. Hope this helps
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