US President Donald Trump's battle against NAFTA ends in victory.
NAFTA. Trump called it “the worst trade deal maybe ever signed anywhere” back when he was a candidate in 2016, and pledged to scrap or overhaul the deal if elected. Two years later, on the sidelines of the Group of 20 summit in Buenos Aires, he secured a political victory: a new pact with the US’s closest trading partners. Many analysts, however, consider the changes largely incremental or purely cosmetic.
The USMCA, or United States-Mexico-Canada Agreement, widely dubbed NAFTA 2.0, will encompass more than $1.2 trillion in trade. Its ratification, moreover, is far from certain. Set to take effect by January 1, 2020, the accord must be approved by each country’s legislature sometime this year. Congressional Democrats object to some of its provisions, and they now control the House of Representatives.
In what ways does the USMCA differ from the treaty it’s supposed to replace? The biggest changes affect the automobile industry; vehicles must have 75% of their components manufactured within the bloc to qualify for zero tariffs, versus a 62.5% threshold under NAFTA; and up to 45% of the parts must be made by workers earning at least $16 an hour by 2023. Other amendments give US farmers more access to the Canadian dairy market and extend copyright to 70 years beyond the life of the author, in line with US law. The USMCA also includes a dedicated chapter on labor rights—NAFTA only had a relatively toothless side agreement—that, among other things, bars importation of goods made with forced labor.
Will these changes achieve Trump’s goals or satisfy his supporters? The new requirements for auto components will raise production costs, critics say, while overall the deal could exacerbate rather than curb the US trade deficit with these partners.
“Some of the changes are probably for the better, others are likely for the worse,” says Robert Staiger, professor of economics at Dartmouth College. “None, however, are worth the damage to the rules-based trading system that the Trump administration’s bullying approach to securing these changes will cause.”