NAFTA Out … USMCA In

NAFTA Out … USMCA In

It was argued during the last 8-10 years that it would be impossible to re-negotiate NAFTA (North American Free Trade Agreement), and even if we did, we could not get the changes we wanted for the betterment of the American labor force.  NAFTA, ratified in 1994, helped open markets between Canada, Mexico, and the US.

Most analysts have argued over the years it has been a mixed bag, with the United States usually on the losing end regarding market share and exports.  Before President Trump, many politicians ran against the benefits of NAFTA, and labor groups regularly have denounced it.

BOOM!  My how things have changed!  Out with NAFTA, and IN with the United States, Mexico, Canada Agreement (USMCA).

While the media refers to “cosmetic” changes, or that the President did not get the Canadians to concede on the main sticking points of dispute resolution, any fair-minded review of the terms and conditions leaves no doubt that this was a categorical victory for the country.  And the market response reflected that, with another record stock market high this week after the news was released.

Politically, the deal still must be ratified by each country’s legislature – the US, Canada and Mexico.  One would think that US Democrats would join Republicans in ratifying this new treaty, since they support so many of the new changes.  But in this polarized atmosphere, who knows?

What are the changes the USMCA will bring to North American trading rules?  Here are the Top Five:

Top-Five Changes coming out of the USMCA Trade Agreement

 5.“Lowered tariffs across the board among member states”:  The average tariff under NAFTA among the US, Canada and Mexico, when goods are sold across the border, is approximately 9.3% under.  The agreement would drive the average percentage tariff down to roughly 7% – this 2% decrease totals nearly $20 billion in savings for the consumer.   WINNER?  AMERICA! 

 4.”Higher Pay for Auto Workers”:  Starting in 2020, 30% of all automotive production must be completed by workers earning more than $16 an hour…in 2023, that number rises to 40% of all production completed by workers making over $20 an hour.  This will drive wages up for US producers and increase jobs as supply line savings will not off-set the increased pay for foreign labor.  This requirement did not exist under NAFTA.  WINNER? AMERICA!

3.“Auto parts must come from North American manufacturing”:  Under NAFTA, you could qualify for zero tariffs if only 62% of the automobile was made of North American parts.  now, the requirement has been upped to 75% must come from North America.  WINNER?  AMERICA!

 2.“Greater and more stringent protections for Intellectual property”:  While also needed with China, these new laws allow for law enforcement to stop and raid potential pirating by counterfeiters in intellectual property and increases the sentencing guidelines for such theft.  The easier approval for warrants will help prevent the IP from getting shipped to Chinese or other state-sponsored crime organizations in the first place.  WINNER? AMERICA!

1.“And Trump for the win, Canada caves in on US access to their dairy market”:  A long-time complaint of US farming was the near total banning of US dairy products.  That has been revoked under the USMCA.  As the USA Today put it:  “….Canada will ease restrictions on its dairy market and allow American farmers to export about $560 million worth of dairy products. That’s about 3.5 percent of Canada’s total $16 billion dairy industry.”  Canada, former President Obama, and scores of US officials said this was a red-line for Canada, they would never do it…BOOM!   WINNER? AMERICA!

It was not all a victory.  Any fair negotiations will have some compromises, or moments where we “agree to disagree.”  Another Canadian red-line was the Dispute Resolution process under NAFTA.  It has been grandfathered in to the USMCA despite American resistance.  The Canadians were unable to remove the current 25% steel tariffs Trump has imposed on all steel entering the country.  So not everyone got what they wanted.

But the American worker clearly got what they needed.

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