The New NAFTA

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By: Rachel Watson

The United States, Canada, and Mexico came to an agreement on September 30 to establish the new modifications of the North American Free Trade Agreement (NAFTA), which was a day before the deadline set under the Trade Promotion Authority (TPA). The new agreement updates and modernizes NAFTA and is now referred to as the U.S.-Mexico-Canada Agreement (USMCA). The USMCA has some major changes, but still maintains the primary foundation of NAFTA. Like any compromise, the agreement is filled with advantages and disadvantages for all three countries. With hopes to restore North America’s previous position as an automotive powerhouse, the USMCA increases the requirement of the percent of finished autos that come from NAFTA countries from 62.5 percent to 75 percent. This change greatly improves the auto industry in the U.S., which was one of President Trump’s primary goals when he brokered this new agreement. America’s automotive sector will benefit from the USMCA (at the expense of Mexico) because the USMCA has a requirement that 40-45 percent of the parts in each vehicle be manufactured by workers earning at least 16 dollars an hour, with the goal of leveling wages between the three countries. Canada begrudgingly agreed to let U.S. farmers have more access to the Canadian dairy industry by allowing farmers more ability to sell milk protein concentrate, skim milk powder and infant formula. Additionally, many local Mexican farmers may be put out of business because they will be unable to compete with the subsidized prices of U.S. farm products, which the USMCA will allow into Mexico. Yet, there are doubts that the new trade pact will have any impact at all. According to a survey of economists conducted by the Wall Street Journal, they reported that the new trade pact is unlikely to boost economic growth or manufacturing employment. U.S. car buyers can expect the cost of cars to increase but it is unclear how much the prices could rise.

During late November, the USMCA is anticipated to be signed at the G20 summit meeting in Buenos Aires. The USMCA still needs to pass through Congress after President Trump and his respective counterparts sign it. Resultantly, the USMCA will reach the floor sometime in 2019. The results of the midterm election will play a huge role in how Congress will handle passing USMCA. There is a possibility that President Trump will withdraw from NAFTA to force Congress’ hand in order to pass USMCA sooner. Since the trade deal will not even be considered by Congress until 2019, these new provisions will not go into effect until 2020. The USMCA will expire after 16 years due to the sunset clause unless it is agreed upon to extend it or there is a possibility of terminating the agreement, they will meet every six years to review the USMCA.

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