The New NAFTA

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Written by Brennan Albrecht

The new deal negotiated by the countries of North America as a potential replacement of NAFTA has received a fair mixture of praise and criticism. The new trade agreement, the U.S.-Mexico-Canada-Agreement (USMCA), comes as the result of President Donald Trump’s major campaign promise to reshape NAFTA in order to better the United States’ position within NAFTA. There are a few major changes to this agreement that will benefit all involved parties, but as with most agreements, there are some criticisms that will be studied as it moves forward.

One major change comes from the auto industry. NAFTA had originally been designed to help auto industries within the countries by requiring certain percentages of those autos to be made within the country itself by workers who were paid a certain wage. The new USMCA deal continues that but increased the percentage to 75%, up from 62.5%, and the wage to $16 an hour. This new protection will ensure at least two things: more protectionist auto trade policies (which many believe will hurt the overall industry) and better pay for auto workers (which many praise as an improvement for auto workers, especially Mexican workers). The result is a mixed bag of improvements and detriments, the effects of which will only be truly determined by time.

Another change that is seen as a win by Canada is the retention of the Chapter 19 dispute settlement clause. This complex system allowed countries under NAFTA to sue each other over trade and manufacturing disputes, and Canada used it the most against the US. Initially, Trump wanted to remove the Chapter, but months of negotiation convinced Trump to retain it. On the flip side, the new deal gives Mexico and the US more access to Canadian dairy markets, which before were protected for Canada by stricter trade agreements and tariffs. This might bring down dairy prices for Mexico and the US, but Canada’s dairy market will suffer from the lower prices they now have to sell at.

Despite the ups and downs of the agreement, trade experts and representatives from all three countries seem to be relieved that Trump has agreed not impose higher tariffs or quotas on imports and exports. This new deal does favor the US more, the auto and steel industries are cheering it on. Many also agree that Mexico will benefit greatly from this deal. The new wage and manufacturing requirements ensure better pay and job stability for Mexican workers.

In the end, it’s difficult to see where this deal will be going. As with all economic policies, only time can tell who wins and loses. As most predictions and critics say, the results will likely be mixed. Some who were winners in NAFTA may lose under USMCA, and vice versa. Nevertheless, it has been agreed upon by all three countries and will soon become law. It will then determine whether or not “America First” actually works or not.

 

Sources:

[1] “The renegotiation of NAFTA is a relief. But it is not a success.” The Economist. Oct 4, 2018. https://www.economist.com/leaders/2018/10/04/the-renegotiation-of-nafta-is-a-relief-but-it-is-not-a-success

[2] Gertz, Geoffrey. “5 things to know about USMCA, the new NAFTA” Brookings. Oct 2, 2018. https://www.brookings.edu/blog/up-front/2018/10/02/5-things-to-know-about-usmca-the-new-nafta/

[3] Diamond, Liptak, and Newton. “US and Canada reach deal on NAFTA after talks go down to the wire” CNN. Oct 1, 2018. https://www.cnn.com/2018/09/30/politics/trump-nafta-canada/index.html

[4] “Factbox: Winners and losers from the new NAFTA deal” Reuters. August 30, 2018. https://www.reuters.com/article/us-trade-nafta-factbox/winners-and-losers-from-the-new-nafta-deal-idUSKCN1LF2O9

[5] Mauldin, William and Jacob M. Schlesinger. “Ten Things to Know About the Nafta Deal” The Wall Street Journal. Oct. 1, 2018. https://www.wsj.com/articles/ten-things-to-know-about-the-new-nafta-deal-1538365823

 

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