A CGE analysis of the impact of trade liberalization between

An examination is made of the effects of free trade between the US and Mexico on the sectoral trade balance of the US. The empirical findings indicate that free trade would benefit the overall trade balance of the US, but the benefit will be small in the near to medium term for 2 reasons. First, there is a huge disparity between the economic sizes of the 2 countries. Second, a sizable share of Mexican exports already enter the US under the Generalized System of Preferences or at low rates under maquiladora production-sharing arrangements. The relatively low tariff rates already in effect allow most of the benefits of trade between the US and Mexico to be realized and therefore limit the potential benefits to the US from free trade.