The U.S. International Trade Commission released its much anticipated analysis of NAFTA 2.0, formally known as the U.S.-Mexico-Canada Trade Agreement or USMCA. In short, the commission found USMCA will yield a positive effect on U.S. GDP and employment, albeit a small one.
On April 18, the International Trade Commission published its nearly 400-page report detailing the likely effects of USMCA if it were to be implemented. The analysis will likely guide Congress when the issue comes to a vote.
At the larger scope, the analysis estimates that USMCA would raise U.S. GDP by $68.2 billion or 0.35%. Employment in the U.S. would increase by 176,000 jobs or 0.12%, with 28,000 full-time jobs in the automotive industry alone.
U.S. exports to Canada and Mexico would increase by $19.1 billion (5.9%) and $14.2 billion (6.7%), respectively. U.S. imports from Canada and Mexico would increase by $19.1 billion (4.8%) and $12.4 billion (3.8%), respectively
Among the provisions included in USMCA, two will have the most significant effects on the U.S. economy: reduction of policy uncertainty about digital trade and new rules of origin for the automotive industry. Perhaps not coincidentally, those were the two main talking points during the trilateral negotiations.
New rules of origin will require 40%-45% of automobile content be made by workers earning at least $16 per hour. The Office of the United States Trade Representative hypothesized this would support better jobs for U.S. workers by creating an even playing field, thus incentivize vehicles and parts investments in the U.S. The commission’s report affirmed that theory, stating rules of origin requirements are estimated to increase U.S. production of automotive parts and employment in the sector. However this will come at a cost of small increase in prices and small decrease in vehicle consumption.
According to the analysis, certain provisions would reduce U.S. investments in Mexico, while leading to a small increase in U.S. domestic investment and output in the manufacturing and mining sectors. Intellectual property rights that increase protections for U.S. companies are estimated to increase U.S. trade in some industries.
If USMCA is passed as is, manufacturing is expected to experience the largest percentage gains in output, exports, wages and employment. Agriculture will also realize positive gains with an annual increase of exports by $2.2 billion or 1.1%. The report foresees a small increase in U.S. exports to Canada of dairy products, poultry meat, eggs, egg-containing products, wheat and alcoholic beverages. USMCA would also lead to a small increase in U.S. imports of sugar and sugar-containing products and dairy products from Canada.
United States Trade Representative Robert Lighthizer released the following statement:
“This report is an important step forward in gaining congressional approval of the USMCA. The ITC analysis shows that USMCA will increase U.S. employment by 176,000 jobs and is projected to increase GDP by 0.35%. This is more than double the 0.15% growth rate the ITC projected for the multilateral Trans-Pacific Partnership. These findings validate President Trump’s action to withdraw from TPP and renegotiate the disastrous NAFTA. With USMCA, we will have stronger growth, more trade and more jobs – particularly in manufacturing. There can be no doubt that the USMCA is a big win for America’s economy.”
The issue of cross-border trucking was briefly discussed in the analysis. One provision in the USMCA essentially restricts Mexican carriers to the border commercial zones.
Industry stakeholders in the U.S. argue that such restrictions on Mexican long-haul trucking services would result in more competitiveness of the U.S. trucking industry. However, some critics say the restrictions “may invite retaliation by Mexico and thus undermine future U.S. negotiations to further liberalize cross-border services trade with Mexico,” according to the report.
USMCA will give the U.S. power regarding the supply of trucking services by Mexican firms within the United States. One provision allows the U.S. to restrict Mexican trucks in the event of “material harm” to U.S. trucking suppliers, operators and drivers. To date, only 35 Mexican carriers are authorized to provide long-haul services within the U.S. Some question the impact of this provision.
“Some industry representatives question the usefulness of including a provision to increase limits on the relatively small number of Mexican trucking firms in the United States,” the report states. “They indicate that doing so may, in fact, discourage further negotiations to open U.S. cross-border services trade with Mexico. In addition, some industry representatives indicate that NAFTA trade currently generates significant revenue and employment for the U.S. trucking industry, and that these benefits may be enhanced by achieving greater border efficiencies through cooperation among USMCA partners.”
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