The United States and Canada have agreed to replace the North American Free Trade Agreement (NAFTA) with an upgrade version of it. They settled the agreement on September 30, 2018, and named it The United Sates-Mexico-Canada Agreement or U.S.M.C.A. The settlement includes certain amendments to the original trade agreement, especially in the departments of automobile production, dairy, labor, and environmental standards.
However, Donald Trump calls it a brand-new agreement; but it is more of a NAFTA 2.0. The three countries have reached this settlement after more than a year of dialogues. The United States president called NAFTA the “worst deal ever.” Thus, America and Canada entered a new series of renegotiations. The United States-Mexico-Canada Agreement seems to have satisfied all three countries as they celebrate their new trade agreement. The Mexican President expressed his contentment by calling it a “win-win-win agreement.” On the same hand, the Canadian Prime Minister Justin Trudeau described it as a modernized way for North American trade in one of his interviews. Donald Trump also called it the best trade deal that has ever been made. The three leaders are planning to sign the agreement at the end of November. Until then, this subject will remain under debate that whether the new agreement is the better one and what changes and improvements is it going to bring (Tankersley).
The two visible changes that have been made in the new trade agreement are that the American farmers will get the permission to sell their dairy products such as cheese and milk to Canada and that a major part of automobile production will be done in North America (Swanson and Tankersley).
The pact focuses on shifting the production of cars and other vehicles to the countries that pay wages in a higher amount. It means that 40-45% of the components of a vehicle will be manufactured in the factories that pay its worker at least $16 per hour. Thus, it aims at discouraging the production of automobiles in the lower-wage Mexico. Mexico here sacrificed its competitive advantage to save the deal (Tankersley).
USMCA will increase the access of Canadian and Mexican manufacturers to the United States’ huge markets. But the tariff that these manufacturers will have to pay is still questionable. In the North American Free Trade Agreement, the automobile makers were required to produce 62.5 percent of the vehicle’s parts in North America to avoid the tariff. This percentage has been brought up to 75% in the United States-Mexico-Canada Agreement. Thus, this agreement will shift a major part of automobiles’ productions to North America, leaving very few parts to be assembled in China, South Korea, Germany, and Japan. It will mutually benefit all three countries in the trade regardless of Mexico, making a sacrifice regarding automobile production in its homeland. It is how international trade works. Countries focus on their comparative advantages and produce goods at lower opportunity costs. This strategy equally benefits all the parties involved in the trade (Sherman).
Donald Trump has continually threatened to impose tariffs on imported vehicles over the past year. These threats of auto tariffs have gotten many countries like Japan and South Korea to rethink their trade talks with the U.S. Canada specifically finds it very offensive as it is America’s closest defense partner. However, the U.S.M.C.A will manage to protect Canada and Mexico from a major portion of these tariffs by any side agreements that have been finalized. But both countries will continue to have to pay tariffs for steel and aluminum under section 232. Section 232 is a loophole in the agreement that Donald Trump has smartly used to boost the U.S. local steel and aluminum industry.
Canada was certain to protect its dairy market by limiting the dairy imports from America. Its dairy products have always gotten the upper hand in international markets as compared to Americans ones. This dispute was causing hurdles in the trade agreement. However, the new deal has now given the US advantageover Canadian terms of dairy products. The principle of absolute advantage applies here. The United States has an absolute advantage over other countries as it is blessed with some of the richest farmlands in the whole wide world. When we talk about these farmlands, it also includes the America’s huge dairy industry. It requires lesser resources to grow wheat, corn and manufacture dairy products in America as compared to other countries.
Thus, the USMCA will now open the Canadian markets to more dairy exports from America, including butter, cream, fluid milk, skimmed powder, and cheese, etc. Canada most probably agreed to this settlement comparative advantage. It will focus on producing some other goods that will cost the country less resources and labor. This idea is based on the concept of opportunity cost. Canada’s opportunity cost for producing some other goods must be greater than that of dairy products. As David Ricardo said that if a country focuses on its comparative advantage and specializes in it, not only will the overall global output increase, but it will also be largely benefit from trade. Thus, giving up on dairy and focusing on manufacturing that particular good will benefit Canada in its range of trade (Tankersley).
Canada also agreed to remove one program from the settlement that was beneficial for its domestic dairy producers. However, this may sound like a victory for the United States, but the experts believe it will not prove to be beneficial for more than a few US dairy farmers. But the Canadian agriculture and dairy industry is slowly beginning to realize that they got screwed over and the Canadian government is likely to face some protests from its agricultural sector shortly. The USMCA also forces the bars in British Columbia to sell American wines along with their own. The list including certain cheese name has been released that can be marketed in the America and Mexico without any restrictions. Some of the names included in this list are blue, brie, cottage, cheddar, cream, Swiss, Mozzarella, Ricotta and many more.
The United States wanted to eliminate an enforcement mechanism from the new NAFTA. This mechanism provides an equal hand to all the countries where a panel that includes representatives from all three countries would sit and question other countries’ invalid actions and the imposition of tariffs. Canada managed to preserve this mechanism in the new trade agreement that reflects a clear win for it.
Along with these agreements, certain other small programs are included in the USMCA to benefit the pharmaceutical firms, online shoppers, tech companies and many more. Pharmaceutical companies will benefit as the patients on treatments like biologists will be granted 10 years of protection. Canada increased its period of monopoly from 8 to 10 years while Mexico who was previously offering five years has to extend it to 10.
In the end it can be concluded that although Donald Trump calls it the “21st-century agreement”, but it failed to acknowledge some larger-than-life issues such as global warming or climate change. The environmental chapter only includes air quality, ship pollution, and biodiversity. The USMCA also fails to address gender equality issues. The previous trade agreement had an indefinite time span, whereas the USMCA will expire in 10 years which is a major drawback.
Work Cited
Sherman, Jessica Murphy & Natalie. “USMCA trade deal: Who gets what from ‘new Nafta’?” BBC. BBC, 1 October 2018. Web. 3 October 2018. https://www.bbc.com/news/world-us-canada-45674261.
Swanson, Ana and Jim Tankersley. “Trump’s Trade Moves Put U.S. Carmakers in a Jam at Home and Abroad.” New York Times. New York Times, 10 May 2018. Web. 3 October 2018. https://www.nytimes.com/2018/05/10/us/politics/trump-auto-industry-trade.html?module=Uisil.
Tankersley, Jim. “Trump Just Ripped Up Nafta. Here’s What’s in the New Deal.” New York Times. New York Times, 1 October 2018. Web. 3 October 2018. https://www.nytimes.com/2018/10/01/business/trump-nafta-usmca-differences.html.
+447462439809