President Donald Trump has delivered on a campaign promise to ditch a 25-year-old trade agreement and replace it with something of his own. But where does the president’s new trilateral treaty – the USMCA – stand on the economic and political scale? Will it boost the North American economy? Or will it suffer the same fate as the previous regional pact? So many questions. The best way to answer these questions is to understand what is inside his landmark free trade deal.
What is the USMCA?
After three years of tense negotiations, the United States, Mexico, and Canada reached a comprehensive trade agreement that updates the 1993 North American Free Trade Agreement (NAFTA). From tariffs to manufacturing, the United States Mexico Canada Agreement (USMCA) aims to be a mutually beneficial deal for North American workers, businesses, farmers, and ranchers. It was drafted in September 2018, signed in December 2019, and ratified in early 2020.
It goes into effect on July 1, 2020. The earliest it can be renegotiated is in 2026.
The USMCA is around 1,800 pages long. Here are some of its key features:
- Rules of Origin: Automobiles must have 75% of their parts made in North America, up from 62.5%.
- Labor Costs: Cars or trucks are required to have 40% to 45% of their parts produced by workers making at least $16 per hour.
- Dairy: Canada will relax its protectionist stance on imported dairy by permitting more U.S. milk and butter to flow into Canada. The U.S. would engage in similar behavior.
- Intellectual Property: Copyright laws would be extended from 50 to 70 years after an author’s death.
- Environment: Stricter environmental standards would be adopted for vehicle production, forestry, fishing, and plastic litter.
- Sunset: The USMCA would last for 16 years, but it can be revisited or extended after six years.
- Currency: The central banks would be banned from manipulating their currencies to gain a competitive edge in foreign trade.
A Brief History
After 16 months of negotiations to achieve fairer and freer trade, a comprehensive proposal was drafted in Mexico City, Mexico.
The first document was signed in November 2018, and the revised version was signed in December 2019. Congress approved the USMCA in December 2019, while the Canadian Parliament gave the agreement the thumbs up in March 2020. Mexico’s Senate passed the revised treaty in December 2019.
The next step will be to enforce the agreement, which some say will be the most challenging part.
Why the USMCA?
For years, President Trump has criticized NAFTA for being “perhaps the worst trade deal ever made.” During the 2016 election, he promised to scrap NAFTA and impose a trade agreement that reflects the new economy in the 21st century, from technology to the environment.
After Trump won the 2016 election, Canadian Prime Minister Justin Trudeau said he would be “happy to talk” about NAFTA with his American counterpart.
Mexico might have been on the fence about getting rid of NAFTA. It is claimed that the country had benefitted the most from the old trade pact. But, according to the data, Mexico’s economy is worse off today than before NAFTA, with higher unemployment and average wages falling short of estimates.
A Potpourri of Trade Deals
The contents of the USMCA have something for everyone. For progressives, there are better environmental standards. For unions, there are improved labor conditions. For conservatives, there is greater market access. It is a potpourri of trade deals. North America will only be able to judge the treaty’s efficacy in six years when the parties can give it another look.