The purpose of this paper is threefold, first to provide a synopsis of the third episode of the PBS video ‘Commanding Heights’, second to assess the success or failure of NAFTA and its implications for U.S. economy and in the future., and thirdly to explain the three most important issues faced by the WTO and the World Bank.
The third episode of the Commanding Heights series is titled “The New Rules of the Game” and examines the growth of globalization from the 1990’s through today. Globalization, which moved to a grand scale in the 1990’s, has ushered in the greatest expansion of trade in world history. This unprecedented level of trade provides many opportunities for wealth, but also creates crises which had not been previously seen. The focus of this video is what will be the “new rules of the game” in this global economy, and who will control the commanding heights of the economy.
The first real test of globalization for the United States occurred with the implementation of NAFTA (North American Free Trade Agreement) in 1993. The scope of NAFTA was the North American countries of Canada, The United States and Mexico. NAFTA was drafted and well underway during the presidency of George H.W. Bush, but fully implemented under Bill Clinton. NAFTA was well received by business leaders and Wall Street, but heavily criticized by U.S. labor leaders. Labor leaders, specifically those at the AFL-CIO, viewed NAFTA as giving too much power to multi-national corporations and not enough power to the individual worker. These leaders were also afraid that NAFTA would lead to a reduction in U.S. based union jobs to Mexico. The labor leader’s fears were well founded, as thousands of foreign companies built factories directly across the U.S. border in Northern Mexico. The sole purpose of these factories was to export goods back into the United States. This transition in manufacturing from the U.S. to Mexico was dramatic, including the fact that 80% of the televisions sold in the U.S. are made in Mexico. The result in terms of trade seemed to be a win-win situation for everyone involved, as trade volume between the U.S. and Mexico alone increased seven fold in a six year period. However, there is also a downside for the estimated 400,000 U.S. workers whose jobs were relocated to Mexico. Despite these drawbacks, globalization was moving full speed ahead and the newly created interdependence of global economies would be tested shortly after passage of NAFTA in 1994.
The day that NAFTA was passed, rebels in the Southern Mexico state Chiapas launched an uprising. This sign of instability in Mexico caused a mass exodus in foreign investment and threatened the valuation of the Peso. The potential impact to the U.S. was estimated to be up to 9 million illegal Mexican immigrants heading to the U.S. in search of work. The Clinton administration decided to bail out Mexico with a loan $50 billion. The loan worked, and Mexico was able to pay off its debt and keep the value of the Peso stable. However, this move set a bad precedent for the investment community; that of governments bailing them out of high risk moves.
Other parts of the world were also feeling the positive impact of globalization in the early 1990’s, most notably Asia, whose economies were collectively known as the ‘Asian Tiger’. The specific Asian countries noted in the video included, China, Thailand, Singapore and Malaysia. The impact to China has been tremendous, with up to 300 million people being lifted out of poverty. All of these Asian countries listed had opened their markets and become exporters of all kinds of goods from cars to computers. The rate of annual growth in these countries was 10% by the mid 1990’s. This level of economic growth could not go on forever, and the following events in Thailand during 1997 started the fall of the ‘Asian Tiger’ economies and would become known as ‘contagion’.
By 1997, foreign loans...
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