Goodbye NAFTA, Hello USMCA

October 5, 2018

On Sept. 30, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto signed off on Donald Trump’s new trade deal proposal that is set to negotiate NAFTA. This is a major achievement for the Trump Administration considering it was a notable campaign promise he ran on in 2016. Trump is not afraid to say what is on his mind, especially in the area of NAFTA. Over the course of his campaign, Trump proclaimed that NAFTA “is the single worst trade deal ever approved in this country.”



However, Trump retracted this stance in April 2017, stating, "I decided rather than terminating NAFTA, which would be a pretty big, you know, shock to the system, we will renegotiate. Now ... if I'm unable to make a fair deal for the United States… I will terminate NAFTA.” Trump’s negotiation efforts have come to fruition this past week.

This new agreement has been coined USMCA, short for United States-Mexico-Canada Agreement, and it has reformed many aspects of NAFTA. Countries qualify for zero tariffs only if 75 percent of the automobile is made in the United States, Mexico or Canada. This is a 13 percent increase from the current requirement that allows zero tariffs on automobiles with 62.5 percent of the parts made in either the United States, Mexico or Canada. This change will be a huge success for the president if it passes congressional approval—Trump has emphasized the incentivizing of car production since his campaign in 2016. In addition to this reform, the new deal says 40 to 45 percent of automobiles have to be made and assembled by workers who earn at least an hourly wage of $16 by 2023. These two acts prove largely beneficial to Mexican and Canadian markets seeking to profit in the automobile industry. On the other hand, Trump’s newly imposed tariffs on steel and aluminum presents an obstacle to Canada and Mexico.

Canada has been largely protective of its dairy industry until now. In his signing, Trudeau agreed to disband a program that protects sellers of particular milk products in Canada. In addition, USMCA created a list of cheeses that the United States and Mexico can sell without restriction between the three countries.  

Although Trudeau opened up Canada’s dairy market, he was still satisfied by the fact that the market will remain largely intact. Trudeau remarked that the signing was a “good day for Canada.” Trudeau pushed the preservation of the NAFTA Chapter 19 provision, which allows a neutral meeting between the three countries in order to civilly discuss disputes regarding tariffs and other actions.

Critics have argued as to whether Mexico will benefit as directly as the United States and Canada will. Wages are likely to rise in Mexico’s car manufacturing sector due to the aforementioned new wage policy regarding automobiles, according to proponents of the deal.

USMCA still needs to be ratified by all three governments, but it is likely that all three will be willing to comply. However, it is equally as likely that any Democrats elected during the November midterms will deny USMCA. If USMCA is passed, it will greatly affect the United States farmers and automobile workers. However, it is uncertain how rapidly big name car companies within the agreement will be able to adjust to new wage regulations and Trump’s new steel tariffs.


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