President Donald Trump recently announced “the greatest deal in the history of the U.S.,” the United States-Mexico-Canada Agreement, or USMCA. He is promoting it as a replacement for the North American Free Trade Agreement, which had been in place since 1994 and which Trump had called “a really bad deal.”
Putting aside Trump’s recurring penchant for hyperbole, is USMCA better than NAFTA?
The short answer is that USMCA is really just NAFTA with a few improvements. Calling it by a new name is intended to create the impression that the Trump administration has successfully introduced an entirely new trade agreement rather than simply renegotiated a few elements of the existing one.
Taking credit for accomplishing more than one actually achieves is a common practice among politicians, and while Trump has elevated this proclivity to new heights, he’s certainly not the first or the only one to have used it.
Changes to agreement
In brief, following is a rundown of my understanding of what’s actually changing based on various media reports.
• Automobiles. This is the most comprehensive part of the agreement. Manufacturers can avoid tariffs if 75 percent of their vehicles’ components are manufactured in the U.S., Canada or Mexico, up from 62.5 percent under NAFTA (excluding pickup trucks, which remain completely exempt).
Seventy percent of the steel and aluminum used must come from the region. In addition, at least 30 percent of content must be made by workers earning US$16 per hour or more, rising to 40 percent in 2023.
And while the U.S. maintains its right to impose emergency tariffs of up to 25 percent on cars and parts on grounds of national security, USMCA creates limited exceptions for both Canada and Mexico that are well above current production quantities.
The minimum wage agreement, which is three times the current wage of autoworkers in Mexico, was intended to drive more production back to the U.S. A countervailing viewpoint is that it could result in higher wages for Mexican autoworkers.
• Dairy products. Canada agrees to ease restrictions on its dairy market and allow U.S. farmers to export up to $560 million worth of dairy products. This has been a sore point for American farmers for years, though it still represents less than 4 percent of Canada’s total dairy industry.
• Intellectual property rules. Law enforcement officials now can stop suspected counterfeit or pirated goods in any of the three countries, including imposing criminal penalties for satellite/cable signal theft. Ironically, this new rule was originally promulgated by the Obama administration for the Trans-Pacific Partnership, which Trump refused to ratify.
In addition, USMCA provides 10 years of exclusive protection for new biologic drugs, and standardizes copyright protection for 70 years beyond the year the creator of a work dies.
• Agreement time horizon. USMCA will expire in 16 years, unlike NAFTA, which was intended to remain in place until changed.
Provisions that remain
Some things haven’t changed, including:
• Trade disputes will continue to be decided by a panel of representatives from all three nations.
• U.S. tariffs of 25 percent on steel and 10 percent on aluminum from Canada and Mexico will remain in effect as negotiations continue.
• There will be no increase in the number of visas issued by the U.S. to make it easier for Canadian and Mexican citizens to work across North American borders.
The USMCA agreement will govern $1.2 trillion worth of trade impacting nearly 500 million consumers in North America, making it pretty important.
On balance, I think it’s an improvement over NAFTA but not to the degree that Trump bombastically declares. It still must be ratified by the legislatures of all three nations, which isn’t expected until sometime in 2019.