The Case For Trading In NAFTA For USMCA
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President Trump awakened a forgotten constituency in 2016. Rust belt voters across Michigan, Ohio, and Pennsylvania attached to Trump’s message on removing bad trade deals to bring blue-collar jobs back to the region. This week, he made good on that promise. Trump placed pressure on Mexico and Canada to renegotiate the terms of the North Atlantic Free Trade Agreement (NAFTA) last year by threatening US withdrawal. After months of trade talks, the US Mexico Canada Agreement (USMCA) was introduced. Now, the ball is placed in Congress’s court as they are called to listen to the rust belt voters long ignored by the Washington elite.
Since President Clinton signed NAFTA into law in 1994, the US has accumulated a $1.033 trillion trade deficit with Mexico and a $923.4 billion trade deficit with Canada. Since labor in Mexico became notably cheaper, the US lost around 682,000 jobs to the country, 80 percent of which were in the manufacturing sector.
In Mexico, this fueled the rise of maquiladoras, or US owned companies employing Mexican workers below the border. This program grew to 30 percent of Mexico’s labor force. Unfortunately, these factories are known for poor working conditions, long work days, and low pay. A 2017 Associated Press report found Mexican factories pay workers as low as $2 per hour to make cars worth well over $40,000.
NAFTA lost Americans jobs and maintained a low standard of living in Mexico.
Even President Obama denounced the deal on the campaign trail consistently, but throughout his presidency, the deal failed to see significant change. Instead, Obama sought additional trade deals, such as the Trans-Pacific Partnership (TPP), which many feared would further harm US jobs and freeze wages.
President Trump entered with the “America first” mentality, and immediately removed the US from the TPP and announced a plan to withdraw from NAFTA unless changes were made.
Just hours before the Sept. 30 deadline to iron out a new NAFTA agreement, the US, Canada, and Mexico formed USMCA to officially replace NAFTA..
USMCA brings major change to the North American auto industry. A new provision requires 75 percent of vehicle parts to be produced in the region in order to qualify for tariff-free treatment. Additionally, 40-45 percent of a vehicle must be made by a worker earning at least $16 an hour, this specifically works to reduce low wage labor in Mexico while have little impact on US manufacturers who already average $22 an hour.
Under NAFTA, Canada tightly protected their dairy market, harming the US agriculture sector. Under USMCA, 3.6 percent of Canada’s domestic market is open to the region and costly regulations have been stripped.
The deal also eases shipping costs and restrictions between the nations, so ordering products from Amazon in Mexico or Canada should be faster and cheaper.
President Trump has said of the deal, “This landmark agreement will send cash and jobs pouring into the United States and into North America — good for Canada, good for Mexico. Instead of jobs leaving for overseas, they will be returning back home.”
The announcement of USMCA comes as Trump continues to engage in bilateral trade talks with South Korea, Japan, and India. The President credits his strict enforcement and imposition of tariffs as fueling these negotiations, and believes China will also be forced to come to the negotiating table as a result of these agreements formation.
USMCA has won praise from Republicans and Democrats, with Senate Minority Leader Chuck Schumer noting, “As someone who voted against NAFTA and opposed it for many years, I knew it needed fixing. The president deserves praise for taking large steps to improve it.”
Now both sides need to come together to ratify USMCA into law. The most problematic part of the deal has been the media’s inability to decide on a proper pronunciation for USMCA, there is no reason this should stall in Congress. Rust belt voters, many of whom were long time Democrats, elected President Trump to put America first and replace trade deals that cost them their livelihood. The president has produced a deal beneficial for all parties involved and Congress should recognize that and pass it.