Effects of free trade agreements on U.S. automobile prices

Abstract

Trade in automobiles and automotive parts between the United States, Canada and Mexico has more than doubled since 1985. Trade agreements implemented during this time period could be a reason for the increased trade. No earlier research has been conducted for this time period to determine the price effects of the free trade agreements. This thesis explores the price effects of reallocating automobile assembly capacity outside the United States, focusing on the price effects for U.S. automobile consumers. The regression results suggest that automobiles assembled in Canada or Mexico have not become cheaper compared to U.S. only assembled automobiles after implementation of the trade agreements. However, U.S. new automobile buyers have benefitted from the free trade agreements. Prices of new automobiles in the U.S. have fallen relative to other goods. These price decreases are for all automobiles regardless of assembly origin.