By: Brian Evans
One of President Trump’s major campaign promises was better deals for America and Americans, and more specifically to renegotiate or rewrite the North American Free Trade Agreement (NAFTA), which was implemented under the Clinton Administration. This week, President trump did just that, when he re-wrote NAFTA and gave birth to the United States Mexico Canada Agreement, otherwise called USMCA.
Interestingly, one of the first things that President Trump rewrote was the name. In fact, the name was methodically and carefully crafted, as they wanted to highlight each nations national sovereignty, and get away from globalist transnational names like the (North American Free Trade Agreement). In addition, the United States Mexico Canada Agreement puts the United States first or “America First”, as President Trump has promised. In addition to the nationalist aims of the name, President Trump intentionally removed ‘free trade’ from the name, as the agreement is no longer based on the globalist ideal of ‘free trade’, but instead focuses in on specific conditions or circumstances in which all three trading partners will have lower or ideally no trade barriers.
As far as tariff disputes, the Trump administration rolled back some of the trade policy resolution mechanism that NAFTA used. That is because it gave the power to Canada and Mexico, when they filed complaints about tariffs violating NAFTA. Although the Administration agreed to only moderately roll back tariff dispute resolutions, Canada did cave on a number of fronts that it said it would hold strong.
In fact, Mexico and Canada agreed to new auto manufacturing rules that tighten the ‘rules of origin for automobiles to qualify for zero tariffs. This means that a car or truck imported into the U.S. from Canada or Mexico will only qualify for zero tariffs if 75% of its components are manufactured in North America. Under NAFTA, the threshold was 62.5%. As a result, auto manufacturing was done overseas, costing American jobs, and resulting in not only foreign automobiles being made overseas, but American automobiles as well. Now, with the threshold jumping to 75%, it will result in a win for all three nations, as it will shift a huge portion of automobile manufacturing from eastern nations, to being done in the United States, Mexico, and Canada.
In addition, USMCA was a win for the United States due to its implementation of a minimum wage for zero tariffs autos. Under NAFTA, 30% of manufacturing jobs for cars and trucks were much lower, but under the new agreement, workers will have to be paid at least $16 per hour, which is required to move up to 40% for cars by the year 2023. As a result, it will likely push wages up for Mexican workers, and act as a cap on the lowest paying areas of Mexico. Therefore, American auto manufacturers, as well as foreign auto manufacturers will be de-incentivized to relocate to Mexico which costs American jobs, and American and even Mexican workers will benefit with more take home pay, and a better lifestyle. Also, the Trump Administration included the ‘75% rule of origin’, which says that 75% of cars and trucks must be manufactured, AND ASSEMBLED in North America. Before, China, European nations, Japan, and other countries would manufacture their cars and trucks overseas, have them assembled in Mexico, and avoid United States taxes altogether. However, now 75% of all cars and trucks MUST BE MANUFACTURED AND ASSEMBLED in North America. Therefore, it incentivizes American auto manufacturers to manufacture and assemble in the US, Mexico, and Canada. Also, it incentivizes foreign manufacturers to relocate to one of the three countries as well. This move will likely be popular amongst Union members as well, because they will be the beneficiaries of the new USMCA agreement.
The 75% rule also plays into the Trump tariffs, which have forced foreign nations to openly admit to their unfair trade policies and practices against the United States. As a result, the 75% rule, when combined with automobile tariffs will create even more immense pressure on various globalist nations like China, Germany, Japan, etc. That is because as the President levels tariffs against other nations, under NAFTA, they would simply do most of the work overseas, and then assemble the cars and trucks in Mexico so they could evade US tariffs. Now, President Trump has closed that loophole, and forced those nations to either reduce tariffs against the United States, or almost completely build and assemble them in one of the three nations. Ultimately, it will result in most cars being manufactured in the United States and Canada, therefore creating more jobs, and boosting the American economy. Now, we simply have to wait to see if other nations force President Trump’s hand, so he has to raise automobile tariffs on competing nations, as they are currently set at just 2.5%. Therefore, because they are so low, most nations choose to pay the 2.5% tariff, and keep making car parts in Asia. Reports indicate that the President has already warned foreign nations that he will raise tariffs on automobiles, if they refuse to practice ‘FAIR TRADE’ against the United States, which is a move that is highly likely in the coming months.
Automobile manufacturing is not the only sector aided by the new USMCA trade agreement. In fact, many thought that the Canada and Mexico would get President Trump to grant exemptions on steel and aluminum tariffs! However, the Trump Administration held firm and granted no such exemptions. In fact, the new agreement allows those tariffs to stay in place, unless they practice fair trade across the broad spectrum of products that are traded between the member nations. In fact, President Trump has said that they could be granted those exemptions, but that would be completely separate negotiations from USMCA.
Also included in the agreement was an agreement for higher labor standards for Mexican workers. As a result, it ensures their workers the right to organize and join unions. The new agreement should lead to better protections for Mexican workers. This helps U.S. workers by decreasing the incentives to move jobs south of the border to take advantage of weak labor rights and wages. U.S. workers will be able to compete on a more level playing field than in the past. In addition to Mexican working conditions, the agreement requires trucks that cross into the United States meet U.S. safety regulations, and places more stringent environmental protection standards on manufacturing companies in Mexico. As a result, American manufacturers who had previously chosen to move south of the border to evade more expensive environmental regulations, would no be de-incentivized to do so now, or in the future.
One of the main sticking points for Canada was the dairy industry, as the had massive tariffs on the United States, while the United States did not treat Canadians with the same discourtesy. Under USMCA, the agreement allows Canada to keep its complex system of quotas on milk and dairy products in place while expanding the market share available to U.S. farmers. It is a huge win for America’s dairy farmers.
Finally, USMCA ended one of the most controversial aspects of the North American Free Trade Agreement, in that it stopped companies and investors from suing the governments of Canada and Mexico if they believed a new policy–such as a higher environmental standard threatened their investment. Previously businesses would sue the two nations, and consequently ‘shake down’ their respective nations governments for subsidies or payoffs, in order to resolve their dispute. It was more-or-less a government shake-down that resulted in payoffs and bribery. The one area that it continues to allow telecommunications and energy sectors to be open to suit, due to investors fear that the Mexican government may use it as a way to nationalize those industries. The Trump Administration left it in as a safeguard for nationalizing and socialism.
Ultimately, the United States Mexico Canada (USMCA) deal still must be ratified by Congress, and due to the agreements complexity, details that are laid out within the agreement need to be analyzed by trade experts and labor unions. In the end, most of the key provisions will not kick in until 2020, which gives the three nations governments time to adopt key provisions into law. However, this appears to be a great deal for America, and especially the American workers. It certainly is an incredible improvement over the globalist ideals that were supported within the North American Free Trade Agreement, and it moves America yet another step closer to putting America and American’s interests first.