The U.S. House of Representatives overwhelmingly voted to pass the U.S.–Mexico–Canada Agreement (USMCA) last week, and it’s expected to pass in the Senate next year. Some experts said the advancing of the agreement gave businesses the assurance they need, and will bring freer and fairer trade among the three countries and subsequently boost the U.S. economy.
Canada and Mexico were America’s second and third largest trade partners last year, the two countries together account for over 30 percent of U.S. foreign trade in 2018, with a total of over $1.2 trillion last year.
“It speaks to the understanding of how intrinsically wound our economies are with our partners to the north and the south, and I think it opens up markets for U.S. goods, while putting some protections in place for U.S. jobs,” said Carl Fowler, Chief Commercial Officer at Transportation Insight.
The deal gives more Canadian market access for American dairy products, including cheese, milk, butter, yogurt, and ice cream. It will also expand the U.S. poultry and eggs market access in Canada.
Fowler points out that the freer flow of goods will also create new opportunities for the transportation industry, “As the Canadian market opens up for U.S. dairy products, the need for temperature-controlled transportation to move cross border is going to raise.”
Another important provision in the agreement is the tougher “rules of origin” requirements for the auto industry. For vehicles to be imported duty-free, they need to have 75 percent of parts made in North America instead of the original 62.5 percent under NAFTA. But the bar will be raised gradually in several years.
It would raise the cost for automakers to build cars and trucks in the near term, but according to a report (pdf) by the United States Trade Representative (USTR), “All automakers with a presence in North America have indicated to USTR that they will be able to meet the requirements of the new rules—and that they intend to do so.”
“Even if it does cost the automakers something more, consumers are ultimately going to be willing to bear those costs,” said Mark Hamrick, Washington Bureau Chief and Senior Economic Analyst at Bankrate.
The agreement also requires 40-45 percent of auto content be made by workers earning at least $16 per hour. “(The deal) will provide stronger protection for U.S. jobs and I think level the playing field relative to labor markets and all three trading partner,” said Fowler. It will likely shift car assembly north from Mexico and incentivize new vehicle and parts investments in the United States.
The deal also provides stronger protection for labor and the environment, and include a digital chapter for the first time.
Critics say the USMCA did not make enough progress compared to NAFTA, but Hamrick said it gives businesses the certainty they need. “It’s quite clear that business groups in the U.S. and elsewhere support this deal because they think it’s the most important thing for them to eliminate that uncertainty for the future,” said Hamrick.
The agreement can also serve as a template for future trade deals. “More developed economies could sign on to those services trade provisions. Japan has already indicated that it’s fine with the digital chapter of the services trade chapter,” said Derek Scissors, resident scholar at the American Enterprise Institute.
And it also shows that the two sides of politics can still find common ground. “In this rather difficult and challenging political climate, Republicans and Democrats came together to support the USMCA deal,” said Hamrick. “So in that sense, it is a win for both sides, which, if it is good for the American people, that’s the way that it should be in government.”
According to an estimate released by the United States International Trade Commission earlier this year, this new trade partnership would boost the economy by $68.2 billion and create 176,000 new jobs.
With reporting by Kitty Wang.