Details on the New NAFTA, Canada Included

Trade negotiators from the US and Canada reached an agreement late Sunday night following threats from the Trump Administration to move forward on a deal it had reached with Mexico (and without Canada) in August. 

Both trading partners immediately experienced a jump in the value of their currency, with the Canadian dollar advancing 0.8% against the US dollar and the Mexican peso jumping 1.1%.

The new NAFTA – which will officially be called the US-Mexico-Canada Agreement or “USMCA” – will replace the 1994-era pact signed by former President Bill Clinton. According to Administration officials, the new deal is expected to create American jobs, boost US manufacturing, and decrease the trade deficit with Mexico (which in 2017 was $68 billion).

The USMCA is a “great deal” that “solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the US, and will bring all three Great Nations together in competition with the rest of the world,” tweeted Trump on Monday. 

The new pact is a victory for Trump that moves him closer to completing another campaign promise and validates his at-times controversial strategies in the area of international trade.

Trump’s key complaint about NAFTA was that it incentivized companies to utilize cheap Mexican labor rather than American-based jobs.

The USMCA in part solves this problem by requiring that 40-45% of auto parts be made in countries where employees earn at least $16 per hour (which essentially means they will be made in the US). Vehicles that do not meet this requirement will be subject to a 2.5% tariff. 

“We celebrate the trilateral deal,” said Jesús Seade, top NAFTA negotiator for Mexico’s president-elect Andrés Manuel López Obrador. “Any result has to be a balance between what all sides want…Every point is not necessarily optimum for all counties, but I think the balance is excellent for Mexico to be able to grow, to be able to export, to be able to attract investment.” 

Canada’s biggest concession is to allow American farmers increased access to its tightly controlled dairy market. In exchange, the US agreed to keep a dispute-resolution process from the original deal and to guarantee Canada protection from potential tariffs on cars and auto parts. 

The USMCA opens Canada’s dairy market to US exports at a level higher than the 3.25% market share that Obama had negotiated under the TPP and eliminates a milk-ingredient pricing program American farmers complained had led to a decrease in demand for their products. 

The new agreement also sets rules for financial services and digital businesses, including limits on online shopping.

At this point, it is still unclear what effect the USMCA will have on Trump’s steel and aluminum tariffs – as well as the retaliatory tariffs both Canada and Mexico have imposed on the US. Many had hoped that reaching a deal would put an end to the tariffs. 

The USMCA will need to be approved by lawmakers in all three countries before it can take effect. 

The agreement is expected to pass the Canadian and Mexican legislatures with little opposition, but the response from US lawmakers has been mixed. 

As noted by Politico, “Republicans are expected to pay close attention to the final details regarding dispute settlement and intellectual property issues, while Democrats will likely be looking for stricter labor and environmental standards. 

Congress will vote on the USMCA in 2019.