President Donald Trump Proposes new US, Mexico, Canada Trade Deal
President Donald Trump Proposes new US, Mexico, Canada Trade Deal:
President Trump believes that the old NAFTA was “a disaster for the United States.” Since 2018, President Trump has been working to “terminate the North American Free Trade Agreement soon.” As a result, he proposed a new deal, called the United States–Mexico–Canada Agreement (USMCA). The USMCA is essentially NAFTA 2.0 with a few updates. The pact has been tweaked to include changes for automakers, labor, and environmental standards, intellectual property protections, and digital trade provisions. Some of the major changes from NAFTA include:
Automobile Industry: Automobiles must have 75 percent (up from 62.5 percent under NAFTA) of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs. Additionally, 40 to 45 percent of automobile parts must be made by workers who earn at least $16 an hour by 2023
Dairy Market: The US gets more access to the Canadian dairy market
Intellectual Property and Digital Trade: Provides more protection on IP for copyrights and pharmaceutical products. Prohibits duties on things like music and e-books and protects internet companies so they’re not liable for content their users produce
Current Progress:Trump already signed this new deal with the president of Mexico and Canada’s prime minister. However, it has to be ratified by both countries to become official. The Mexican government has already passed the new deal but the US Congress hasn’t taken up the USMCA. As the impeachment investigation for Trump coming soon, the hope of passing this deal becomes slimmer.
The potential effect of the USMCA on the US economy:“The USMCA would add $68.2 billion to the U.S. economy and create 176,000 new jobs”, according to a study from the International Trade Commission.
Since a huge part of USMCA covers changes in the automotive industry, there’s potentially a significant boost for U.S. automakers and parts producers. As a result of the new trade deal, U.S. auto plants could potentially attract 34 billion investments and open up 76,000 new jobs opportunities in five years.
According to an ITC report, U.S. exports to Canada and Mexico would increase by $19.1 billion (5.9 percent) and $14.2 billion (6.7 percent), respectively. U.S. imports from Canada and Mexico would increase by $19.1 billion (4.8 percent) and $12.4 billion (3.8 percent), respectively. Moreover, American dairy exports to Canada would increase by $227 million annually under the new USMCA deal.
However, a study from the International Monetary Fund has opposing opinions from the ITC report. Unlike ITC, the IMF report is more pessimistic and claims that the new deal will have a “negligible” effect on economic output and fail to bring auto jobs back to the United States. The reasons include that NAFTA already removed almost all the tariffs and there’s not much the new deal can do to improve upon that.
IMF also believes that “The new rules lead to a decline in the production of vehicles and parts in all three North American countries, with shifts toward greater sourcing of both vehicles and parts from outside of the region.”
Conclusion:The USMCA could stimulate the automotive industry and increase import and export on products like dairy among the three countries, but the impact would possibly be modest. President Donald Trump could potentially benefit from the deal as he needs a victory, facing upcoming impeachment investigation. Some sources reveal that President Trump might’ve made only enough tweaks to pass the deal. However, USMCA would not likely be passed in the very near future and we can only make logical assumptions for its potential impact using existing reports.
