The entry of the company into Mexico implies that it will benefit from trading with other countries in the region under the membership of CUSMA and NAFTA. Notably, NAFTA eliminated a significant proportion of tariffs levied on products sold among the United States, Canada, and Mexico, which contributed to economic integration. Similarly, CUSMA was designed to enhance trade liberalization between the three nations and ensure future legislation does not impede business.
Zhao et al. note that NAFTA and CUSMA positively impacted the economic fortunes of the U.S., Canada, and Mexico. Among the notable changes arising from these trade treaties are enhanced access to markets, eliminated tariff barriers, easier dispute settlement mechanisms, and robust environmental protection. In this regard, the renegotiation of these agreements means an expanded market for the firm’s products and services and nil cross-border tariffs. Therefore, the organization can exploit the incidental opportunities and scale up its operations to meet the demands of the new markets, resulting in higher profitability.
Additionally, the liberalization and integration of the three markets incentivize firm productivity and stimulate innovativeness. Alhassan and Biekpe corroborate this perspective and posit that access to foreign markets is inherently intertwined with increased competition due to expanded export opportunities. Similarly, the business faces new entrants in its local market, compelling it to seek new and creative approaches to enhance its competitive advantage and retain market share.
The agreements also force other businesses to operate in an environmentally responsible manner. However, the tremendous liberation of the market exposes the organization to increased competition. As a result, the market price for the products and services is likely to fall, which will adversely affect the firm’s profit margins. Removing the protectionist systems that existed before liberalization implies that infant businesses may be unable to compete, leading to a loss of market and declining profitability.
- What Is the North American Free Trade Agreement (NAFTA)?
- Effects of Latin America’s Trade with Developed Nations
- Trade Issues and Patterns of Mexico
- Canada’s International Trade Policy
- United States Trade Deficit Trends
- The Impact of the U.S.-Mexican Trade War
- The Demographic Changes of American Trade Unions