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. The president’s new treaty – the USMCA – is a deal between the United States, Mexico, and Canada. Will it boost the North American economy? Or will it suffer the same fate as the previous pact? 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 negotiations, the three countries reached a 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 benefit North American workers, businesses, farmers, and ranchers.
It goes into effect on July 1, 2020. The earliest it can be changed 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 need to have 40% to 45% of their parts made by workers getting at least $16 per hour.
- Dairy: Canada will permit more U.S. milk and butter into the country. The U.S. would act in the same way.
- Intellectual Property: Copyright laws would be extended from 50 to 70 years after an author’s death.
- Environment: Stricter environmental standards for car factories, forestry, fishing, and plastic litter.
A Brief History
In May 2017, the White House revealed its plan to abandon the old NAFTA deal and come up with something new.
After 16 months of negotiations to achieve fairer and freer trade, a proposal was drafted in Mexico City, Mexico. It was later revised.
Congress approved the USMCA in December 2019, while the Canadian Parliament gave it 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 criticized NAFTA for being “perhaps the worst trade deal ever made.” During the 2016 election, he promised to scrap it and impose a new trade agreement that reflects the new economy in the 21st century.
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 Mexico 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. Will it have better luck under USMCA?
North America will only be able to judge the USMCA treaty’s efficacy in six years when the parties can give it another look.