Bloomberg is reporting this week that uncertainty remains about the proposed new North American Trade deal and why the “original NAFTA” isn’t dead and gone in spite of numerous administration pledges to wipe it out.
In the 2016 campaign, candidate Donald Trump frequently pledged to renegotiate and terminate the deal “if we don’t get the deal we want.” The 1994 agreement included the U.S., Canada and Mexico and was intended to phase out tariffs on most goods to create “the world’s largest free-trade zone,” and to “triple trade among the signatories.”
Negotiations over a replacement deal were underway for more than 13 months in 2017 and 2018, and the three countries have agreed to modest changes to NAFTA and a new name, the U.S.-Mexico-Canada Agreement. However, the changes have still not been implemented, Bloomberg says.
In fact, the original deal is still in effect, covering most of the $1.25 trillion in annual trade among the three countries while leaders work on the USMCA. The administration “never actually pulled the U.S. out of NAFTA,” Bloomberg says.
A year ago, the three countries signed a new pact and Mexico’s Senate ratified it in June. President Trump has been pressing the U.S. Congress to approve it but House majority Democrats are seeking changes, including stronger enforcement of the stepped-up labor and environmental provisions. Canada’s Parliament has held off on ratifying the deal as talks continue.
Bloomberg says that the reason why the administration disliked the agreement so much was that it integrated North American supply chains in auto manufacturing and other industries and removed barriers to foreign investment and cross-border trade in services—and so was blamed for “increasing the U.S. trade deficit and sending manufacturing jobs to Mexico.”
Though economists argue over NAFTA’s actual impacts, most objective studies have found it didn’t cause major aggregate job losses in the U.S., but also “didn’t significantly boost U.S. GDP. Bloomberg and others note that NAFTA did need updating although the deal which had been in place since 1994 “couldn’t have anticipated e-commerce and digital trade.”
Now, while the administration says the proposed new agreement is “altogether different”—many agree that it is quite similar. Even fellow Republicans such as Senate Finance Chairman Chuck Grassley, R-Iowa, believe that “95% of the new deal is the same as NAFTA,” Bloomberg says.
Some industries would notice changes, however. For example, automakers would require more vehicle components to be made in North America with a portion made by workers earning an average of at least $16 per hour.
In addition, Canada agreed to allow more imports of U.S. dairy products and both Canada and Mexico would increase the value of goods that can be imported duty-free.
Bloomberg cites the U.S. International Trade Commission finding that the new deal would boost U.S. trade with Mexico and Canada by about 5% overall, resulting in a 0.35% GDP increase in its sixth year. It would also boost U.S. workers’ annual incomes by an average of $150 and increase employment by 0.12%, or roughly 176,000 jobs.
Bloomberg adds that the deal also would “benefit businesses by providing increased certainty about the future, especially because it would largely exempt Canada and Mexico from future auto tariffs.”
So, it appears that the deal “has momentum” but still faces hurdles. U.S. Democrats have pushed for changes on pharmaceuticals, environmental protections, labor and enforcement of the accord and have especially focused higher wages for Mexico to reduce pressure on U.S. companies to move across the border.
However, there is growing concern that Mexico will come up short on the reforms expected of it, which include independent labor courts and the right to elect union representatives.
Mexican officials say they’re near a deal but have balked at proposals such as unannounced labor inspections that they say would infringe on their sovereignty. As negotiations drag on, other sticking points have emerged, including the agreement’s liability shield for tech companies and the required use of North American steel and aluminum in vehicles. The administration is pushing Congress to ratify the deal by year’s end.
So, we will see. These talks involve high stakes for U.S. producers who have long invested in building access to growing markets across the region. Certainly, they should be watched closely by producers as they proceed, Washington Insider believes.
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