President Trump replaces NAFTA with a new trade agreement.
The US, Mexico and Canada have forged a new trade pact to replace the 25-year-old North American Free Trade Agreement (NAFTA).
At stake is more than $1.2 trillion in trilateral trade between the three countries: the total in 2018, according to the Council of the Americas. The US-Mexico-Canada-Agreement (USMCA) was signed more than a year ago, but Democrats in the US House of Representatives lobbied for a rewrite to include changes to labor and environmental provisions. Still, the revised deal is seen as a political victory for Trump ahead of impeachment.
Elliot Hentov, head of policy research at State Street Global Advisors’ Global Macro Policy Research group, warns the USMCA is only superficially different from NAFTA. Even so, he praises Trump’s brokering of the new agreement as one of his “most presidential” acts: “It shows him able to complete a deal, be pragmatic and get Congress on board.” Yet, he notes Trump supporters may be less than impressed: “Hard to articulate what he has brought home from the point of view of the swing states coping with a downturn.”
The deal is expected to provide only a modest boost to the US economy. According to the US International Trade Commission, the USMCA will raise US real GDP by just 0.35%; and Canada could see imports from the US rise by $19 billion and exports to the US rise by the same amount.
Mexico’s Senate overwhelmingly backed the deal in December; arguably, Mexico had the most to gain. The leftist policies of President Andrés Manuel López Obrador have unnerved US investors, particularly in the energy sector. According to BBVA Research, net foreign direct investment fell more than 11.9% between January and September of 2019. A renewal of this major economic bloc could spur investment, Hentov suggests: “Having competitive advantages that resemble old globalization is why Mexico should fundamentally be appealing.”
US and Canadian lawmakers are expected to quickly ratify the new agreement, which includes amendments that affect autos and pharmaceuticals.
