times as they are combined with other parts to assemble large
components (e.g., engines and transmissions) before the entire car is
assembled in the final location.
Trade Diversion.
It is hard to say how much trade diversion there has been and will be in
the future. The greatest potential for trade diversion is with Mexico,
which competes in the Canadian and U.S. markets with a large number of
products produced in other low-wage countries. Southeast Asian
exporters to the United States and Canada have been worried that Mexico
would capture some of their markets by virtue of having tariff-free access
denied to their goods. Most estimates predict, however, that trade
creation will dominate over trade diversion.
Transition and Surprises.
Most transitional difficulties were initially felt in each country’s import-
competing industries, just as theory predicts. Such an agreement as the
NAFTA brings its advantages by encouraging a movement of resources
out of protected but inefficient import-competing industries, which
decline, and into efficient export-oriented industries, which expand
because they have better access to the markets of other member
countries. Southern Ontario and parts of Quebec had difficulties as some
traditional exports fell and labour and capital were shifting to sectors
where trade was expanding. By the late 1990s, however, Southern
Ontario was booming again and its most profitable sectors were those
that exported to the United States.