Understanding the Colonial Economy: Mexico / NAFTA
Teacher Version

Grades 9-12 (may be adapted for 6-8)

Introduction

Lesson Extension for "Understanding the Colonial Economy," from the Eyes on the Economy: Part I

Often teachers and students are able to internalize historical and economic concepts through a more recent event that has occurred within their time frame. This lesson is an extension for the lesson, "Understanding the Colonial Economy." It examines the role and effect of NAFTA in the Mexican and US economies.

The Economic Standards - National Content Standards in Economics

Standard 5 - students understand that:

Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations.

Standard 6 - students will understand that:

When individuals, regions, and nations specialize in what they can produce at the lowest cost and then trade with others, both production and consumption increase.

Lesson Plan

Review with students that in the lesson on"Understanding the Colonial Economy," they learned that the colonists produced what they could best produce relative to their available resources and that they could export at a competitive price. They then traded these goods and earned more income that led to the colonist expanding their output. Through trade both the Europeans and the colonist gained more products and were better off than if trade was not conducted.

Display Screen 1 and read the quote from Adam Smith:

Pose the question: "How does Adam Smith's philosophy relate to what you have learned in the lesson, Understanding the Colonial Economy?"
The Taylor (spelling reflects Adam Smith's time) has special skills that enables him/her to produce clothes whereas the shoe maker has special skills in the production of shoes. Through trade both the shoemaker and Taylor gain (more clothes for shoemaker and more shoes for the Taylor). Like the Taylor and the shoemaker, the colonists and the Europeans each produced what they could produce best with their individual resources that the other party wanted. By trading, both parties, the Europeans and the colonists, were better off.

Ask students if they think this theory still hold true today and why.
Answers will vary.

Display Screen 2. Review with students the following definitions:

Tell students that a recent agreement was made between the United States and Mexico and Canada called the North America Free Trade Act or NAFTA. NAFTA was passed by the United Congress in 1993. The underlining purpose of this legislation was to remove some tariffs and quotas in order to improve trade among the three partners, United States, Canada and Mexico. Display Screen 3 reviewing the key points.

At this point, you may have the students listen to an interview with Lacey Gallagher, of Latin American Ratings with Standard and Poor's.

Remind students that Adam Smith pointed out in 1776 that if countries specialize and trade all parties benefit.

Ask students: Do you think that as a result of NAFTA, trade increased between the United States and Mexico and improved the economic welfare of both nations? Explain.
Once barriers interfering with trade were lifted, the US could export more to Mexico and the US would import more from Mexico. The citizens of both countries would benefit through increased trade.

Distribute a copy of the WEB QUEST activity to each student. Tell students to use the web sites listed on the activity to gather information on changes in:

• GDP between 1991 and 1998 for the United States and Mexico.
• Amount of Mexican exports to the US in dollars.
• Amount of US exports to Mexico in dollars .
• Exports from one US state to Mexico in dollars between 1993-1998 (State will be assigned by teacher.)

Also, have students locate data on the impact of NAFTA on individual states. Assign each student a different state for which they should locate the changes in US export totals to Mexico in US dollars between 1993 and 1998.

Students will observe some states such as North Dakota have experienced significant growth since 1993 whereas others such as Michigan have basically seen little change in their exports.

Tell students once they have gathered this data, they will work in groups to answer the questions in the WEB QUEST activity.

After students have gathered the information from the Internet, divide them into small groups Ask members of the group to share their findings and answer the questions.

Discussion Questions

1. What is the annual trade surplus for Mexico in trading with the US since 1995?
   Trade surplus has been in the $15 to $18 billion range.
2. What are the implications for Mexico?
   Their positive trade balance has had a positive impact on the Mexican economy - generating more jobs and increasing GDP.
3. Given the two way trade between the US and Mexico, what has been the percentage growth in trade between the two countries since the implementation of NAFTA?
   Trade has increased approximately 110%.
4. How could this increase in trade affect job creation in Mexico?
   This increase in trade has led to more jobs.
5. In time, How might an increase in jobs affect wages and worker skills?
   Wages increase, more technical skills required and better educated labor force .
6. How would the reestablishment of trade barriers between Mexico and the United States affect the following: Mexico's economy, the US economy, the US consumer?
   The impact would be much greater on the Mexican economy since a much larger % of the Mexican GDP is correlated to the exports to the US. US citizens would probably pay higher prices on some products if Mexican imports were reduced since there would be a reduction in competition .

Ask students to make a generalization about the impact of NAFTA on the United States and Mexico.
Students should be able to generalize that NAFTA has positive implications for Mexico and the US.

United States

Since the United States is a developed economy the impact on the US would be less. However there may be certain geographic regions that are impacted to a greater degree. The data suggested these states would most likely be in the Southwest US along with industrial states in the Midwest. As in the colonies (less developed) and Europe (more developed) both countries will gain. Although both countries gain, there will be some businesses that may be hurt by increased competition in both countries.

Mexico

With the Mexican economy being smaller and less developed the resulting impact on Mexico would be greater. Some industries will expand while others may have to change or close down. Through trade more products will be available and consumers and some producers will benefit in both countries.

Display Screen 1. Reread Adam Smith's quote. Ask students:

Does Adam Smith's philosophy on free trade still hold true today for NAFTA? Explain.
Adam Smith's philosophy written in 1776 regarding benefits of trade rings true today. Companies in Mexico and the United States specialize with each producing what they can produce best with their individual resources. These goods can be traded to earn income. In turn, each can purchase products they want and don't produce. Through trade both groups are better off. Restrictions on trade generally are at the expense of the consumers who pay higher prices because of the reduction in competition.

How might NAFTA affect you and your future?
The Mexican economy should continue to grow with trade expanding between the US and Mexico. This trade extension could create increased opportunities for existing businesses among young people entering the labor force.